CHAPTER-I

BUSINESS ENVIRONMENT
I. CONCEPT OF BUSINESS Introduction:
Business is one of the economic activities. In the modern times, business has become one of the most important economic activities and means to achieve material prosperity and human welfare. The systematic development of Business is of paramount significance for achieving desired economic growth and development of economies in the context of liberalization, privatization and globalization.

Meaning and Definition of Business:

Etymologically, Business means the state of being busy. In this sense, any economic activity with human beings keep themselves busy can be regarded as business. But such a view is too general to serve any purpose. In the general sense, business is identified with exchange of goods and services. In this sense, business refers to mere trading i.e. buying and selling of goods. This view is too narrow because scope of modern business is quite wide. In its practical sense, Business refers to all those economic activities which are concerned with the production or purchase of goods and services for the purpose of sale at a profit. In this sense, business includes activities like manufacturing, trading, transportation, warehousing, banking and finance, insurance, advertising, etc. Thus, business is sum total of all gainful human activities, which aim to create, exchange and posses wealth in the form of physical output and useful services.

Classification of Business:
Business activities can be broadly classified into two categories, they are: 1. Commerce 2. Industry

1. Commerce:
Commerce is a wide term consisting of all those activities, which are necessary for sale, transfer or exchange of goods and services. It provides the necessary link between producers and consumers to ensure proper distribution of goods. Commerce basically aims to ensure supply of goods at the right place, in the right quantity and at the right time. Thus, commerce ensures free and smooth exchange by removing various hindrances or obstacles in the way of exchange. The hindrances may be in respect of persons, place, time, risk, finance and information.

Branches of commerce:
Commerce includes two types of activities, trade and aids or auxiliaries to trade.

A. Trade:
Trade refers to buying and selling of goods and services with the aim of earning profits. It is an essential part of commerce. It helps in making the goods produced available to ultimate consumers or users. In the absence of trade, both producers and consumers will have to search each other and it would not be possible to undertake production activities on a large scale. Trade removes this hindrance of person by creating a link between producers and consumers. The persons who are engaged in trade are known as traders or middlemen.

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Classification of Trade: Trade can be classified into two broad categories based on geographical coverage. They are Internal trade and External trade. a. Internal Trade: Internal trade or Home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country. Both the buyer and the seller belong to the same country. Internal trade can be Wholesale Trade or Retail Trade. b. External Trade: External trade or foreign trade is concerned with the buying and selling of goods and services between persons or organisations operating in two or more countries. External trade can be Import Trade, Export Trade or Entrepot Trade.

B. Aids to Trade
Aids to trade refer to those activities which facilitate the purchase and sale of goods. These activities are generally referred to as services because these are in nature of facilitating the activities relating to industry and trade. Transportation, banking, insurance, warehousing, communication and advertising are regarded as auxiliaries to trade because they play a supportive role to trade and industry.

2. Industry:
Industry refers to that branch of business activity which is concerned with the raising, production, processing or fabrication of products. The goods raised or produced by an industry may be consumer goods or capital goods.

Classification of Industries:
Industries can be classified into two categories, they are: A. Primary industries B. Secondary industries A. Primary industries: Primary industries refer to those industries which are concerned with extraction and production of natural resources and reproduction and development of living organisms, plants, etc. Primary industries can be further divided into two categories: a. Extractive industries: Extractive industries refer to those activities which are concerned with extraction or production of wealth from soil, air, water or from beneath the surface of the earth. They include agriculture, mining, fishing, forestry, hunting, fruit gathering, etc. The products of extractive industries are generally used by manufacturing and construction industries. b. Genetic industries: Genetic industries refer to those activities which are undertaken for reproducing or multiplying plants and animals with the object of earning profit from their sale. Nurseries raising seedings and plants, cattle breeding, poultry farming etc are the examples of genetic industries.

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B. Secondary Industries:
Secondary industries refer to those industries where human labour plays a more important role than nature. Secondary industries are further classified into two types, they are:

a. Manufacturing Industries:
Manufacturing industries refer to activities concerned with the creation of form utility i.e. they are activities concerned with the conversion of raw materials or semifinished goods into finished goods. Manufacturing industries can be sub-divided into four types. They are:
1. Analytical industries:

Analytical industries refer to those manufacturing industries which produce many type of products by analysing, i.e. separating, the same basic raw materials into different products. For example, oil-refining is an analytical industry. In oil refining, the same crude oil is analysed or separated into different products like petrol, diesel, kerosene, lubricating oil etc.
2. Synthetic industries:

Synthetic industries refer to all those manufacturing industries where various materials are combined together in manufacturing process to manufacture a new product. For instance, cement industry is a synthetic industry where cement is produced by combining many materials such as stone powder, ash, gypsum, coal etc.
3. Processing industries:

Processing industries refer to those manufacturing industries where raw materials are processed through different processes i.e. stages of manufacture, into finished products. Textile industry, paper industry, sugarcane industry etc are examples of processing industries.
4. Assembly Line Industries:

Assembly line industries refer to those manufacturing industries where different component parts already manufactured are assembled into final products. Automobile industry, television industry, cycle industry etc. are examples of assembly line industries.

b. Construction Industries:
Construction industries refer to those activities which are concerned with the creation of infrastructure necessary for economic development. In other words, they refer to those activities which are concerned with construction of buildings, roads, railway lines, dams, canals etc. They are erected, built or constructed at fixed site.

Interpretations of the term Business:

The term business literally meant the state of being busy for an individual, group, organisation or society. Business is interpreted as ones regular occupation or profession or economic activities. Business is also understood as a particular entity, company, organisation, enterprise, firm or company. Business is also interpreted as particular market segment sector like Real estate business, textile business, rubber business etc.

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Characteristics of Business:
1. Business is an Economic Activity: Every business is an economic activity leading to the creation of utility of one kind or another. Creation of utility can be form utility, place utility, time utility etc. 2. Business Involves Sale, Transfer or Exchange for Value: Business involves sale, transfer or exchange of goods or services for value. Therefore, only the production or purchase of goods or services with the object of selling them or exchanging them for value comes under business. 3. Business is Created and Managed by People: According to Peter F. Drucker, Business is created and managed by the people known as entrepreneurs. A group of people who will take decisions will determine whether an organisation is going to prosper or decline, whether it will survive or will eventually perish in market. This conclusion is true of every business. 4. Business is Conducted with Profit Motive: Business is conducted with the object of making profit. Earning of profits by a business is necessary for its very survival. Without profit business cannot survive for long. 5. Business Involves Element of Risk: Business involves risk i.e. possibility of loss arising from uncertainty. However, the degree of risk differs from business to business. Generally capital investment decides the degree of risk, larger the capital investment, greater is the risk of business and vice versa.

Objectives of business:
Business is an economic activity carried on by the people (i.e. entrepreneurs and managers) through people (i.e. the employees) for the people (i.e. consumers and the society at large). Therefore, business cannot be carried on in isolation of society. It will be influenced by political, economical and social environment. The business too will influence the environment, particularly the economic and social environment. This implies that the objectives of business are determined by the interaction between the business and the environment. The objectives of modern business are influenced by many types of environment; therefore, businesses have many categories of business objectives. The objectives of a modern business may be broadly classified as follows: A. Economic objectives B. Social objectives C. Human objectives

A. Economic objectives:
Business is basically an economic activity therefore its primary objectives will be the economic objectives. The main economic objectives of the business are as follows: 1. Survival: Survival is the most fundamental and natural objective of business. Survival is the will and desire to forge into future as long as is possible. It gains more value and prominence during the initial stages of establishment of business and during economic

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crises. The ability to survive depends upon nature of ownership, ability of management, economic conditions, financial strength, profitability etc. however, in the long run, every business will think beyond mere survival in the market. 2. Profitability: Making Profit has been one of most important objectives of business since ages. However, it is not the sole objective of the business. Earning of profits by a business is necessary for the following reasons: a. Profit is the reward to the entrepreneur for undertaking the risk of business. b. Certain minimum profit is necessary even for the very survival of business. According to Peter F. Drucker, the problem of any business is not the maximization of profit but the achievement of sufficient profit to cover the risks of economic activity and thus avoid loss. c. Profit helps to generate sufficient resources to finance further expansion and growth. d. Profit is the measuring rod of business performance and the test of effective business operations. e. Profit ensures stability and prosperity of the organisation. Thus, the profit of any business must be reasonable. It must be sufficient to enable the business to cover its costs and stay in the business. 3. Stability: Stability means the ability of business to continue its business operations in an effective manner in different economic conditions. In other words, business should manage to function effectively during boom, recession or depression, it should have ability to benefit from favorable conditions and counter or cope with adverse situations. A business should achieve stability in terms of profitability, market share, customer satisfaction, creditworthiness, employee satisfaction, Business growth etc. 4. Efficiency: Efficiency is the fundamental requirement of growth. According to Peter F. Drucker, Efficiency is doing right thing in a right way. Efficiency implies optimum utilization of productive capacity of the business and scarce resources available with the business. Efficiency helps in achieving the sustained development of business, reduction in wastage of resources, cost leadership in the market, etc. 5. Creation of Customers: Business activity of an enterprise can be sustained only if there are enough customers to buy the products and services offered by enterprise. Without a sufficient base of customers, a business enterprise cannot survive. According to Peter F Drucker, there is only one valid definition of business purpose: to create more and more customersit is the customer who determines what a business is the customer is the foundation of business and keeps it in existence, and it is to supply the customer that society entrusts wealth-producing resources to the business enterprise. To create a customer business has to understand what customer wants and wants of customers can be understood with the help of marketing research. 6. Innovation: In a dynamic business world, change is order of the day. Therefore, there must be change in every business in tune with change in environment. A business can create

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customers and earn profits only when it produces newer and better products and services, and this is possible only through constant innovation. Innovation in business means adaption to the changes taking place in the environment. Innovation may take the form of using new techniques, adopting new processes, introducing new designs, providing newer and better products and suggesting new uses for the products. Innovation helps the business in achieving competitive advantage and build favourable image of the business in the minds of customers. 7. Growth: Growth is a dynamic objective of business. It relates to the future of business and encompasses all the activities which lead to achievement of greater heights in business. Growth in business can take many forms like increase in assets, manufacturing facilities, and increase in sales volume in existing product, improvement in profits and market share, expansion of business etc. Growth may take the business into relatively unknown and risky paths, full of promises and pitfalls. The pursuit of growth may lead to business prosperity or become reason of perishing of business enterprise.

B. Social Objectives:
Business activities cannot be carried on in isolation. They have to be carried on in a social environment and social environment imposes certain social responsibilities on business. Thus, business to fulfill its social responsibilities creates social objectives. The following are the important social objectives of business: 1. Supply of Goods which Society Wants: Business thrives on the goodwill of the community in which it is carried out. A business can enjoy the goodwill of the community if it fulfills the responsibility of supplying goods and services of standard quality which community wants. 2. Social Welfare: A good business aims to participate actively in the social welfare activities of the area in which it functions. A business can contribute to social welfare by running schools & colleges, hospitals, prevention of pollution, avoidance of profiteering and anti-social practices, production according to national priorities, upholding moral & ethical norms of society, ensuring balanced development of all regions etc.

C. Human Objectives:
Human resource is the most important asset of any business. All other resources can be effectively used only through human resource. Human resource is the only asset in the organisation which improves and gets appreciated over a period of time and use. Business has human objectives to ensure continuous availability of appropriate human resource always: 1. Providing Employment: One of the important human objectives of a business is to provide employment in the society. This objective may, sometimes conflict with the economic objective of cutting down cost and increasing profits through mechanization and automation. However, business can plan and ensure mechanization and automation is implemented smoothly in phases to avoid loss of jobs to people in the society.

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2. Development of Human Resource : The objective of development of human resource is to ensure the smooth functioning, growth and development of business. Human resource can be developed by a business by giving opportunities to its employees for developing new skills and abilities and individual development. 3. Paying Equitable Remuneration and Providing Benefits to Employees: Business always aims to pay wages and provide benefits to employees according to their ability to contribute to the development of business. Payment of fair wages and providing benefits will keep employees contended and help the business to run smoothly and efficiently.

II. BUSINESS ENVIRONMENT:

Introduction:
Business cannot function in an isolated vacuum. Businesses function within a whole gambit of relevant 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 continually remains passive to the relevant changes in the environment is destined to gradually fade away from market. To be successful business has to not only 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. 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.

Meaning of Business Environment:

Environment literally means the surrounding objects, influences or circumstances that encompass something within which it exists. The environment of any organisation is "the sum total of all the aggregate conditions, events and influences that affect it". Environment is anything and everything which affect the functioning of business either directly or indirectly. It is the sum of many external and internal factors. Business environment refers to all factors that have an effect on business decisions, its performance and organisation. According to Arthur M. Weimer, "Business environment encompasses the climate or set of conditions in which business operations are conducted".

Environmental influences on business:

Enterprises operate within an environmental framework. Although environment and the enterprise influence each other, the influence of environment on enterprises is more pronounced and prominent. The external environment of an organisation consists of all such forces and events that are external to and beyond the control of individual business enterprises and their management. These forces and events are given within which the firms and their management have to operate, adapt and adjust in order to survive.

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There is a continuous interaction between the organisation and its environment. The interaction suggests a relationship between the two. This relationship can be viewed and analysed in three ways: 1. Organisation as input-output sub-system of the broader environment: 2. Organisation as a central focus for realisation of contributions of groups 3. Organisation as source of opportunities and threats 1. Organisation as Input-Output Sub-System of the Broader Environment: The organisation can be viewed as an input-output sub-system of a broader environment. It takes various inputs viz, human, capital, technical from the environment. These inputs are transformed by the business through various processes into outputs viz, goods, services. The outputs are then exchanged with customers and the exchange may bring in some benefits in the form of profits, reputation, goodwill etc. to the business which could be stored and used for further development and growth. What kind of inputs are taken, processes are adopted and outputs are given by the organisation are determined by nature of organisation and environment.
2. Organisation as a Central Focus for Realisation of Contributions of Groups:

The organisation can be viewed as the central focus for realizing the contributions of many groups both within and outside the organisation. When these groups contribute to the well-being of the organisation, they must have legitimate share in organizational outputs. These groups may be employees, consumers, suppliers, shareholders, government, and the society in general. Thus, the organizational functioning is affected by the expectations of these groups and the organisation has to take these factors into account.

3. Organisation as a Player or Performer in the Environment:

The organisation can be treated as player operating in environment presenting opportunities and threats to it. How best the organisation uses opportunities provided and threats imposed on it is a matter of prime concern for it. Thus, organisation looks on the environment as posing threat or offering immense opportunities for it for exploitation.

Problems in understanding the Environmental influences:

Managers have to develop an understanding of the environment and use this understanding while making strategic decisions. However, in trying to understand the environment, managers face different problems which are listed as follows: 1. Environment is Combination of Many Diverse Factors and Influences: The environment is combination of many diverse factors and influences. It is highly difficult to find out how these diverse factors and influences should be used as information for appropriate strategic decision making. Mere listing of environmental influences may not be useful for strategic decision making if overall picture of environmental influences on organisation does not emerge. 2. Changes in Environment are Highly Uncertain: The pace advancement in science and technology has made change order of the day. Continuous change in the environmental factors and influences make it very difficult for manager to predict the future events and influences on business and uncertainty about future increases.

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3. Managers Tend to Be Biased while Analysing Environment: Managers are also human beings; they are also biased in some way or the other. Managers try to understand and simplify the environmental aspects and influences in a biased manner. They tend to give more importance to those aspects of environment which were important historically and confirm the established views. A strategic manager has to overcome such a biased approach to analysis and be more logical and creative in analysing the environment.

Framework to Understand the Environmental Influences:

In spite of problems in understanding the business environment, organisations cannot ignore it. Organisations need to create a framework to understand the environment and its influences on organisation. This will help in identifying key issues, find means and ways of coping up with external environment and assist in strategic thinking. A General Framework Consists of Following Steps: Step 1: Environmental Scanning: Environmental scanning is the process of understanding an organisations environment in terms of nature, behaviour and complexity, i.e. whether it is certain or uncertain, relatively static or dynamic, simple or turbulent, easy or complex etc. environmental scanning is the process by which firms track their environment. Environmental scanning helps in deciding what focus the rest of analysis should take. Step 2: Monitoring and Auditing of Environmental Influences: Environmental monitoring and auditing is the process of observing environmental changes to see if important trends emerging from those spotted by environmental scanning. To be successful at monitoring environment it is necessary for the firm to have the ability to interpret the different environmental events and trends effectively. Step 3: Analysis of Key Factors in Environment Directly Affecting the Organisation: The organisation has to focus on those key factors in the environment which are in immediate proximity and directly affecting the organisation. The organisation has to make an attempt to understand why certain forces are of strategic relevance and importance. The aim is to ascertain and analyse the competitive position of the organisation.

Environmental scanning:
Meaning of Environmental Scanning:
Environmental scanning is the process of understanding an organisations environment in terms of nature, behaviour and complexity in order to provide basis for environmental analysis. Environmental scanning helps in deciding what focus the rest of analysis should take.

Factors to be Considered or Scanned in the Environment:

The environment in which an organisation exists consists of perplexing variety of factors. These factors which are also termed as influences are events, trends, issues and expectations of different interested groups. The influences are explained as follows:

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1. Events: Events refer to specific occurrences that take place in different environmental components. For instance, a bilateral trade agreement between two countries is an event. 2. Trends: Trends imply the ways in which the external environmental shapes. Trends occur as a result of some events. For example, a trade agreement between two countries is an event, which facilitates the entry of multinationals. Therefore, the entry of a multinational is a trend that has taken place as a result of the event. 3. Issues: Issues involve the concerns that arise in response to events and trends. For example, the entry of multinationals brings along various issues or concerns, such as cross-cultural and business ethics issues. 4. Expectations: Expectations imply the demands made by interested groups to resolve issues. For example, in multinational companies, issues related to business ethics can be addressed by promoting transparency and good corporate governance practices.

Approaches to Environmental Scanning:

There are three approaches which are adopted by strategists for sorting out the information for environmental scanning. The Four approaches are: 1. Informal assessment 2. Ad hoc approach 3. Systematic approach 4. Processed-form approach 1. Informal Assessment Approach: Informal assessment approach is an emergency measure to identify the critical issues in the environment which affect the organisation deeply. It is a reactive measure adopted by organisation change becomes a necessity to survive in the market. 2. Ad hoc Approach: Ad hoc approach refers to environmental scanning which is short-term in nature. It is adopted by the organisation for studying special projects, evaluate existing strategies, or devise new strategies. Changes and unforeseen developments may also be investigated with regard to their impact on the organisation. 3. Systematic Approach: Systematic approach implies that regular approach is adopted for collecting information. The systematic approach requires updating the information from time to time. 4. Processed-Form Approach: Processed-form approach refers to an approach where the organisation uses information in a processed form. In this approach organisation does not add its inputs to the information and uses the information as given.

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Since environmental scanning is absolutely necessary for strategy formulation, organisations use different practical combinations or approaches to monitor their relevant environments. Table Showing Different Approaches Used in Environmental Scanning: Approach Situation Nature Environment Studied
1. 2. 3. 4. Informal Assessment Ad-Hoc Approach Systematic Approach Processed Form Approach Crises Occasional Regular continuous Reactive measure Cautious approach Proactive approach Proactive approach Issue related decisions Relevant environment Relevant environment Relevant and General environment

Factors Affecting Environmental Scanning:

In order to draw a clear picture of what opportunities and threats are faced by the organisation at a given time, it is necessary to appraise or scan the environment. This is done by being aware of the factors that affect environmental appraisal, identifying the environmental factors and structuring the result of this environmental appraisal. Given the same environmental conditions, no two strategists or two organisations would appraise or scan the environment in a similar fashion. This is due to the many factors that affect the process of environmental appraisal. We can identify these factors by classifying them into three categories which are as follows: 1. Strategist-Related Factors 2. Organisation-Related Factors 3. Environmental-Related Factors 1. Strategist-Related Factors: There are many factors related to the strategists, which affect the process of environmental appraisal. Since strategists play a central role in the formulation of strategies, their characteristics such as age, education, experience, motivation level, cognitive styles ability to withstand time pressures and strain of responsibility have an impact on their ability and efficiency in appraising their organisations environment, apart from these factors that are related to strategists as individuals, group characteristics could be the interpersonal relations between the different strategists involved in appraisal, team spirit, power equations operating between them. 2. Organisation-Related Factors: Like those of strategists, many characteristics of the organisation also have an impact on the environmental scanning process. Organisation-related factors are the nature of the business of an organisation is in, its age, size and complexity, the nature of its market, type of products and services that it provides, technologies, and processes used by it produce goods and render services. 3. Environmental-Related Factors: The nature of the environment of the organisation determines how its appraisal could be done. The nature of the environment depends on its complexity, volatility or turbulence, hostility and diversity. The environment might affect organisations positively or negatively. If the environment of an organisation is not stable, then the organisation would prefer environmental appraisal on regular basis.

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Thus, how well environmental scanning is done depends on the strategists, their organisations and environment in which their organisations exist. Before strategists can structure the environmental appraisal, it is necessary to identify the environmental factors.

Environmental Analysis:
Meaning of Environmental Analysis:
Environmental analysis or external analysis or environmental appraisal is the process of dividing environmental influences into different significant components and sub-components in order to monitor, comprehend and study those components and sub-components in a systematic and comprehensive manner and integrating them rationally to find and determine the opportunities and threats that are present in the environment. There are three aspects involved in environmental analysis, viz, 1. Monitoring and dividing the environmental influences. 2. Comprehending and studying the different components and sub-components of the environment in a systematic manner and integrating them rationally. 3. Identifying opportunities and threats based on environmental monitoring co.

Features of Environmental Analysis:

1. Environmental Analysis is a Holistic Exercise: Environmental analysis is a holistic exercise in which total view of environment is taken rather than viewing trends piecemeal. This is necessary because some elements may indicate opportunities while others may indicate threats. 2. Environmental Analysis is Exploratory Process: Environmental analysis is heuristic process or exploratory process. While monitoring aspect is concerned with present developments, a large part of process seeks to explore unknown terrain, the dimensions of possible futures. 3. Environmental Analysis is Continuous Process: Environmental analysis is a continuous process rather than a one-shot deal. The continuous scanning of environment enables the strategic managers pick up the signals or triggers in the overall pattern of developing trends.

Objectives and Goals of Environmental Analysis:

1. To Provide an Understanding of Current and Potential Changes in the Environment of the Organisation: Environmental analysis should provide an understanding of current and potential changes taking place in the environment. It is important for the strategic managers to be fully aware of the existing environment and at the same time have a long term perspective about the future. 2. To Provide Input for Strategic Decision Making: Environmental analysis should provide inputs for strategic decision making. Mere collection of data is not enough. The information collected must be useful for strategic decision making.

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3. To Facilitate Strategic Thinking: Environmental analysis should facilitate and promote strategic thinking in organisations. It should become the basis for developing new and creative viewpoints in strategic thinking. 4. To find out correct fit between the firm and its environment: Environmental analysis should help strategic manager to find out the correct fit between the firm and its environment, so that strategic managers can formulate strategies to take advantage of opportunities and avoid or reduce the impact of threats.

Need for Environmental Analysis:

Role or importance of environmental analysis in strategic management is quite crucial. Based on observation of strategic management practices of different companies, a perception has emerged that those companies which give high importance to environmental analysis show better performance than those companies which do not give high importance. This is so because without proper environmental analysis, no meaningful strategic action can be taken. The need for environmental analysis in strategic management will be clear from the following important reasons: 1. Disequilibrium in the Organisation: The environment changes so fast that new opportunities and threats are created which may result disequilibrium in organisations existing equilibrium. Environmental analysis acts as a basis to maintain equilibrium in the organisation, 2. Provides Some Time to Anticipate Changes: Environmental analysis gives strategists time to anticipate opportunities or threats in the environment and plan to take optional responses to these opportunities or threats. Thus, it ensures that organisation is proactive and reactive to changes in the environment. 3. Helps in Developing Early Warning System: Environmental analysis helps strategists to develop an early warning system to prevent threats or develop strategies which can turn threats to the organisations advantage.
4. Helps in Creating Feasible Set of Alternatives to Cope With Environment:

Environmental analysis helps strategists to narrow the range of available alternatives and eliminate options that are clearly inconsistent with forecast opportunities and threats. The analysis helps in eliminating unsuitable alternatives and to process most promising alternatives. Thus, it helps strategists to reduce time pressure and to concentrate on those which are more important.

Characteristics of Business Environment:

The difficulty in studying the environment arises due to the following important characteristics of the business environment: 1. Environment is Complex: Environment consists of a number of forces that interact with each other to create entirely new set of forces, which make it complex. The more complex the environment, the more variables have to be taken into consideration and hence more

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difficult to make effective decisions. The difficulty in coping with the wide range of environmental influences is what makes the strategic management complex. 2. Environment is Dynamic: The environment of an organization is never static. It is constantly changing. Changes in technology, government regulations, competitive forces etc., compel organizations to shift gears and change direction quite often. At times, there could be too many changes in too little time, leading to surprises in the marketplace. 3. Environment is Uncertain: Environmental uncertainty means the degree of complexity plus the degree of change existing in organization's external environment. As more and more markets become global, the number of factors a company must consider become huge that is, it becomes more uncertain. With new technologies being discovered every year, markets change and products must also change with them. On the one hand, environmental uncertainty is a threat to strategic managers because it hampers their ability to develop long-range plans and to make strategic decisions to achieve a fit between the organization and the environment. On the other hand, environmental uncertainty is also an opportunity because it creates a new playing field in which creativity and innovation can have a major part in strategic decisions. 4. Environment is Turbulent: When the rate of change in the environmental factors is so fast that it makes the environment unpredictable, such a phenomenon is called "turbulence". Peter F Drucker called this phenomenon "discontinuity", because the things happening around the firm are almost totally disconnected from the past experience of the firm. 5. Environment is Multi-faceted: The shape and character an environment assumes depends upon the perception of the observer. A particular change in the environment or a new development may be viewed differently by different observers. This is evident when the same development is welcomed as an opportunity by one organisation and as a threat by another organisation.

Techniques of Environmental Analysis:

Environmental scanning leads to the identification of many issues that affect the organisation. These issues could be judged on the basis of the intensity of their impact on the business of the organisation and the relative probability of such an impact. This type of study helps strategists in identifying critical, vital, high and low priority issues which could narrow the range of environmental issues they have to focus their attention upon. The identification of environmental issues is helpful in structuring the environmental analysis so that the strategists have good idea of where the environmental opportunities and threats lie. Environmental analysis is a difficult process as environmental issues do not lend themselves to a straightforward classification into neat categories. An issue may arise simultaneously from more than one sector of the environment. Strategists have to use their experience and judgement to place the different environmental issues where they mainly belong, so that clarity emerges.

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There are many techniques that are used to evaluate or analyse the environment of an organisation. A strategist selects techniques which suit the organisations needs in terms of quality, availability, timeliness and relevance of environmental information. The following are the three most commonly used techniques for analysing the environment of the organisation. 1. Environment Threat and Opportunity Profile (ETOP Analysis) 2. PESTEL Analysis 3. Scenario Analysis

1. Environment Threat and Opportunity Profile (ETOP Analysis):

Glueck has suggested a technique called ETOP to structure the environmental analysis. ETOP is the acronym for Environmental Threat and Opportunity Profile. ETOP is a summarized picture of environmental factors and their likely impact on the organisation. ETOP involves dividing the environment into different sectors and analysing the impact of each sector on the organisation. A comprehensive ETOP involves subdividing each environmental sector into sub-factors and then the impact of each sub-factor on the organisation. Format of Environment Threat and Opportunity Profile: Environmental Sectors
1. Economic Factors: 2. Political Factors: 3. Socio-cultural & Demographic Factors: 4. Technological Factors: 5. Ecological Factors: 6. Market: 7. Suppliers: 8. Market Intermediaries:

Nature of Impact.

Impact of each Sector and Sub-Sector.

2. PESTEL Analysis:
PESTEL analysis is an acronym for Political, Economical, Social, Technological, Ecological and Legal environmental Analysis. PESTEL analysis was suggested by Johnson and Scholes to understand the environmental influences which affect the organisation. The term PESTLE is used to describe a framework for analysis of macro environmental factors. PESTLE analysis involves identifying the political, economic, socio-cultural, technological, legal and environmental influences on an organization and providing a

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way of scanning and analysing the environmental influences that have affected the organisation in the past or are likely to affect an organization or its policy in the future. PESTEL Analysis provides clues to find answers to the following important questions:
1. What environmental factors are affecting the organisation? 2. Which of the environmental factors are most important at the present time, and will be important in the next few years?

PESTLE analysis is an increasingly used and recognized term, replacing the traditional framework for monitoring environment known as PEST analyses. The PESTLE analysis is a simple to understand and quick to implement. The advantage of this tool is that it encourages management into proactive and structured thinking in its decision making. The Key Factors of PESTEL Analysis: 1. Political Factors: Political factors are how and to what extent a government intervenes in the economy and the activities of corporate. Political factors may also include goods and services which the government wants to provide or be provided and those that the government does not want to be provided. Furthermore, governments have great influence on the health, education and infrastructure of a nation. 2. Economic Factors: Economic factors have major impact on how businesses operate and take decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy. The money supply, inflation, credit flow, per capita income, growth rates have a bearing on the business decisions. 3. Social Factors: Social factors affect the demand for a company's products and how that company operates. 4. Technological Factors: Technological factors can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. 5. Legal Factors: Legal factors affect how a company operates, its costs, and the demand for its products. 6. Ecological Factors: Environmental factors affect industries such as tourism, farming, and insurance. Growing awareness to climate change is affecting how companies operate and the products they offer--it is both creating new markets and diminishing or destroying existing ones, On the basis of these, it should be possible to identify a number of key environmental influences, which are in effect, the drivers of change. These are the factors that require to be considered in the matrix.

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3. Scenario Analysis:
Scenario analysis is a technique used by strategists in analysing and interpreting a fluid, rapidly changing business environment with an uncertain future. A scenario is a model of a possible future environment for the organisation. Scenarios are effective device for sensing, analysing, interpreting, organizing and bringing diverse information to unfold the future possible situations. Scenarios are concerned with peeing into the future not predicting the future. Prediction takes the current situation and extrapolates it forward. Scenarios take different situations with alternative starting points. The aim is not to predict but to explore a set of possibilities. a combination of events is usually gathered together into a scenario and then this combination is explored for its strategic significance. The organisation then explores its ability to handle this scenario, not because it necessarily expects it to happen but because it is a useful exercise in understanding the dynamics of the strategic environment. Guidelines on Development of Scenarios: 1. Start from an unusual view point. 2. Develop a quantitative description of group of possible events or a narrative that shows now events will unfold. 3. Explore the outcomes of events by building two or three scenarios of what might happen. 4. Include the inevitable uncertainty in each scenario and explore the consequences of this uncertainty for the organisation. 5. Test the usefulness of the scenario in leading to new strategic thinking, rather than merely continuing the existing strategy. 6. Recall that the objective of scenario building is to develop strategies to cope with uncertainty, not to predict the future.

Components of Business Environment:

Organisations do not function in an isolated vacuum. They are managed by two environments. A conscious identification of the relevant environment enables the organisation to focus its attention on those factors that are initially related to its mission, purpose, objectives and strategies. Depending on its priorities, the business entity will take into account the particular environment which is affecting it at that time. The environment in which organisation exists and operates could be broadly divided into two parts the internal and the external. This type of division enables us to understand the complete environment in an easier way and equips an organisation to deal with it better.

Internal Factors:
The internal factors are inherent to a business. They are totally under the control of the business. Internal factors can be understood and manipulated easily. They hold a major part in influencing business decisions and play a big role in determining the success of any decision. These factors are also called controllable factors. They can be modified and altered at wish so that it becomes easier to adapt to the hostile-external environment. The elements of the internal environment are within the organisations' boundaries. The internal environment includes factors like:

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1. The Objectives of the Business: These are decided by the business itself. They plan about what they want to achieve, both in the short and long-term. These objectives help to shape the decisions that the company will take in order to achieve the set goals. Decisions are required on a variety of aspects. 2. The People Employed in the Business: Employees are the people who actually do the work in an organization. Employees are the major force within an organization. It is important for an organization that employees embrace the same values and goals as the organization. However, they differ in beliefs, education, attitudes, and capabilities. The employees, both white and blue collared, are a very important asset of any company. The technical skills that they possess, their attitude towards work and organisation, their demands from the company, the level of their experience etc are all very important internal factors that may affect the performance and growth of any concern. When managers and employees work toward different goals everyone suffers. 3. The Company Image: Each human being occupies a certain image in the minds of others. Similarly, people perceive every organisation in different ways. The company image can be based on the past performance, diversification levels, R&D, advertisement expenses, quality orientation, employee emoluments, etc. Depending on the image of the company, the future growth and progress gets affected. This is because of the impact of the internal environment. 4. The Management The management is the driving force, which decides the pace and direction of growth. Optimistic and enterprising management sets the tone for future expansion and high volume growth. On the other hand, a laid-back and staid management will be content with the state of affairs of the business and will not prefer to change anything in a hurry be it employees, technology, focus areas, etc., there are still others who believe in a constant slow pace of growth. All this will in turn determine the profile of the business in the future with respect to its performance, competitors, profits, turnover, etc. 5. The value systems of the organisation: The values refer to the ethics of business as followed by an organisation. Different sets of values give rise to very different ways of doing business. What may be right for one business may be totally unacceptable for another business. This is, in fact, a very important determinant in the internal environment, which will shape the business in the future. 6. The Assets Owned by the Company: If the business has a strong asset base, in the sense that their production or R&D capacity is big, they are in a better position to take advantages of any sudden opportunities in the environment. Another company, which does not have an existing strong asset base, will take a longer time to first set it up and then supply the order. They can also look at outsourcing to augment the extra demand, but that again calls for adjustment and planning.

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7. The Financial Strength of the Organisation: The financial base and the strength of a business will go a long way in helping any company to adjust with the business environment. In case there are sudden requirements for funds for the purpose of investment and availing beneficial schemes, a financially sound company will have a competitive advantage. They may be able to grab the opportunity faster than another company, which has to first organise the finances and then only avail the opportunity. 8. The Marketing Resources and Setup: A company can rely on its own marketing resources and this is a major strength for any organisation. FMCG companies, which have their own extensive distribution system, find it easier to make forays into the markets, especially the rural and interior areas of a place. This is also achieved at a faster pace. On the other hand, if a new company has to outsource the marketing system, it may not be easy, as competitor preference may erode the company's possibilities to capture a big market share. 9. The Focus on Research and Development: Research oriented companies very often are able to bring out new and innovative products or change their existing product profile easily. They have an ample money and time spend on these activities, and very often emerge as market leaders for new products. 10. The Organizational Structure in the Company: In case the organizational structure of a company is very intricate and structured, it may become very tedious to take fast decisions. Many layers in the hierarchy may prevent speedier work and there is more danger of the issue becoming outdated before it sees the light of the day. More people mean more contrasting opinions and contrasting views. This may prove to be detrimental to the progress of an organisation. On the other hand, if the organizational structure is flat, and delegation of authority is practiced in the company, things can be done at a faster rate, although it is not necessary that the right things are done. 11. The Culture of the Organisation: The culture plays a vital role in the growth and development of a company. Organisations present varied types of cultures. They may be open and informal, where the higher levels are addressed by their first names or it may be very stiff and formal, where every conversation and meeting requires special permissions and time delays. Open cultures normally nurture progressive ideas and creativity flourishes, which may be beneficial to the company. Employees are also more comfortable in such environments and may tend to stay longer.

External Factors:
These are not part of the internal system of the company and are really the Actual environment. External factors are beyond the control of the organisation. They are the part of the outside uncontrollable environment and need to be understood in long-term perspective, if the organisation has to make changes in their strategies to remain successful. The external environment consists of all the factors which provide opportunities or pose threats to an organisation. External environment can be divided into micro and macro environment.

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A. Micro Environment:
These factors are present in the immediate environment of a company. Though they are external, i.e., don't form part of the company, they are more controllable i.e. easy to adapt and adjust than the larger macro factors. The micro factors influence a firm closely, regularly and directly. They affect the performance of a company as they are `close' to the organisation. The micro factors are very intimately linked with the day-to-day working and performance of the company. They can be different for different industries or even varied for different companies. The success of a firm can rely heavily on the way any business deals with the various micro forces that are at play, the micro environment is composed of the following: 1. Customers/Consumers: The prime task for any business is to attract company and retain customers. This is to ensure their long-term profitability and existence in the market. It therefore follows that the need and the desire of the customer should be monitored minutely to ensure customer delight, which will lead to the firm having an increasing number of loyal customers. Changing tastes and preferences of the customer should not only be observed as they happen, but forecasted before, and necessary corrections should be made in the product/service profile by the company. Customers are the backbone of a company and very reason for companys existence. They are the people who pay money in return for products or services that any company offers. Thus, it is clear that organisation cannot afford to neglect customers interest and they automatically become major forces of environment. 2. Competitors: Competitors are the other business entities manufacturing similar products and compete with a company for market share and turnover. Competition shapes business. A study of the competitive scenario is essential for the marketer, particularly threats from competition. Competitors have to be managed well in order to overcome them, and it is possible only through collection of accurate market intelligence. Completion may be direct or indirect. Direct competition is between organizations, which are in same business activity. Indirect competition is between organisations in different industries for the same resources available with the consumers. 3. Organisation: Individuals occupying different positions or working in different capacities in organizations consists of individuals who come from outside. They have different and varied interests. In micro environment analysis, nothing is important as self-analysis by the organization itself. Understanding its own strengths and capabilities in a particular business, i.e., understanding a business in depth should be the goal of firms internal analysis. The objectives, goals and resource availabilities of a firm occupy a critical position in the micro environment. These consist of specific groups that are likely to influence an organization. These are:
a. Owners: They are individuals, shareholders, groups, or organizations who have a major stake in the organization. They have a vested interest in the well-being of the company.

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b. Board of directors: Board of directors are found in companies formed under the Companies Act, 1956. The board of directors is elected by the shareholders and is charged with overseeing the general management of the organization to ensure that it is being run in a way that best serves the shareholders' interests.

4. Market: Market is larger than customers. Market may be defined as the aggregate demand for the product or service in which firm deals. The market is to be studied in terms of its actual and potential size, its growth prospect and also its attractiveness. The marketers should study the trends and development and key success factors of the market the firm is operating. Important issues are cost structure of the market, the price sensitivity of the market, technological structure of the market, the existing distribution system of the market, maturity of market etc. 5. Suppliers: Suppliers are important component of the micro environment. Suppliers are people who supply raw materials and components and machines to the organisation. Large companies rely on hundreds of suppliers to maintain their production. Suppliers with their own bargaining power affect the cost structure of the industry. They constitute a major force, which shapes competition in the industry. The suppliers should be reliable and should act as business partners, working in good co-ordination to fulfill the ultimate consumer expectations. If the suppliers are reliable, there is no need to keep heavy inventory stocks and costs and losses relating to inventory can be minimized. 6. Marketing Intermediaries: Marketing intermediaries exert a considerable influence on the business organisations. Marketing intermediaries are the middlemen who form part of distribution channel and those who help reach products and services to the ultimate consumer . Many customers come to know about new products and services through marketing intermediaries when they visit them for shopping. If this chain is hassle free and functions without hurdles, it eventually helps the organisation and vice versa. 7. General Public: They refer to immediate physical environment of any organisation. People who live around an office or a factory area, exert considerable influence with regard to disposal mechanisms of waste, production practices employed, noise pollution generated, nuisance etc. These people cannot be ignored or else they may also go as far as getting the business closed down.

B. Macro Environment:
The macro environment is the larger uncontrollable environment consisting of societal forces that affect all the other environments. They offer tremendous opportunities for any business and also present threats that can harm a business in a major way. This environment becomes crucially important to understand and study for the purpose of strategic planning and decision-making. It has broader dimensions than the micro environment. It consists. The external environment is actually the real environmental factor that influences the growth and structure of any business to the greatest degree. All its

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activities are shaped and guided by the effect of the macro- external environment. It is made up of the following components:

1. Economic Environment:
Economic environment is the most significant factor of organisations macro environment. No organisation can ignore the economic environment if it has to survive and grow. Economic environment includes general economic environment and financial environment. A. General Economic Environment: Economics environment consists of macro-level parameters related to the areas of production and distribution of wealth that have an impact on the business of an organisation. Some of the specific factors are as follows: 1. The stage of development of the economy, e.g., underdeveloped, developing or highly developed economy. 2. The central planning mechanism, e.g., 5-year planning in India. 3. The economic indices, e.g., national income, GDP, GNP, per capita income, disposable personal income of people, inflation, rate of saving, balance of payments, etc. 4. The type of economic structure prevailing in the country, e.g., capitalism, socialism or mixed economy. 5. Economic policies of the government, e.g., industrial policy, monetary policy, etc. 6. The demand dynamics of the products of the firm. 7. Conditions in resource markets, e.g., money market, manpower market, raw material components, service, supply market, etc. 8. Conditions in the related industries. B. Financial Environment: Financial environment sets the basis for developmental activity of the business system. There are numerous elements that form a part of this environment. So m e o f them are as follows: 1. The Central Bank of the country, e.g., Reserve Bank of India. 2. The health and vision of the commercial banks. 3. The presence and focus of the developmental banks. 4. Non-banking financial institutions. 5. Prevailing interest rates. 6. Policies governing disbursement of loans.

2. Political Environment:
Political environment affects significantly socialistic and mixed economies. In India it is one of the most dominant factors influencing decisions in the organisations. Political environment includes general political, governmental and legal environments. A. General Political Environment: Political environment refers to the political situation that is prevailing in a country at any point of time. The factors consist of the management of public affairs and their impact on the business of any organisation. The political system has a close relationship with the economic policies of a place. For example,

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communist countries have a centrally planned economic system. Some aspects of the political environment are as follows: 1. The general state of political development. 2. The degree of politicalisation of business and economic issues. 3. The level of political morality. 4. The law and order situation. 5. Political stability. 6. Political ideology and practices of the ruling party. B. Government Environment: In any type of economy, the government plays a vital and influencing role in regulating the businesses in a country. It plays a developmental and regulatory role apart from being a guide and setting the general parameters within which businesses are supposed to function. Some of the specific factors are as following: 1. The purposefulness and efficiency of the government agencies.
2. The extent and nature of governmental intervention in the economy and industry.

3. The overall policies of the government regarding development o f the industry. 4. The tenure of the ruling government. 5. The people comprising the government. C. Legal Environment: Legal environment consists of factors related to the planning, promotion and regulation of business activities in a country or a region. There are various Acts that are formulated and amended, which specifically relate to particular industries. This is partly general to all similar enterprises and partly specific to individual enterprises. It includes the following: 1. Specific legal enactments. 2. Laws/Acts imparting a particular business. 3. Broad frameworks within which the businesses have to function. 4. Special legal provisions relating to infrastructures, procedures, permits, licenses, patents, trademarks, etc. 5. Policies relating to imports and exports.
6. The constitutional framework, Directive Principles of state policy, Fundamental Rights and distribution of legislative power between central and state governments. 7. Policies relating to licensing, monopolies, foreign investment and financing of industri es. 8. Policies relating to Small Scale Industries, sick companies, consumer protection and environmental pollution.

3. Socio-cultural and Demographic Environment:

Socio-cultural and demographic environment decides the potential and growth of markets in the economy. Change in social, cultural and demographic factors have direct impact on the demand for products and services offered by the firms. A. Demographic Environment: Demographic environment deals with the composition and characteristics of the population of a place. All the relevant descriptions of the population of a place with respect to its demographic profile will affect business decisions drastically. It would be in the interest of any firm to consider these aspects in detail before planning the strategy. It includes factors such as:

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1. 2. 3. 4. 5. 6. 7. 8. 9.

Family size Size of population Educational levels. Economic stratification of the population Job profiles Gender ratio, composition of the population Life expectancy Religion and caste Spatial mobility of the population.

B. Socio-Cultural Environment: Socio-culture environment consists of the society and culture of a place where the organisation intends to do business. It is a general entity, and influences almost all firms in a similar manner. It is a complex of related factors concerning population dynamics. These factors have a very important impact on the products and services the company offers, the way in which they are packed, the pricing and other features of the marketing mix etc., some of the specific issues that can be studied under this are as following: 1. Social attitudes of the people. 2. Educational levels and Awareness of the population. 3. Role of women in the society. 4. The consumption habits of people. 5. Customs and traditions of a place. 6. The language. 7. Beliefs and value systems. 8. Family structures. 9. Degree and rate of urbanisation.

4. Natural or Ecological Environment:

Natural or ecological environment very often sets the basis of whether it is possible to do a particular business in a place or not. The natural or ecological features may allow only a particular type of business to thrive and do very well. It may be totally non-conducive to another type of business. The natural features of a place may thus have an over-riding influence on the company. Some of the factors are as follows: 1. The climate of a place. 2. The physical features of the location. 3. The type of crops those are grown there. 4. The water supply conditions. 5. The traditional work culture of the place. 6. The soil conditions. 7. Location of the place.

5. Technological Environment:
For many organisations, technology is the most dynamic of all environmental factors. An individual firm is concerned with its product and process technology. Technological environment consists of those factors that involve any type of technology advancement or lack of the same. Some of the specific factors are as follows:

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1. 2. 3. 4. 5. 6. 7. 8.

Rate of change of technology, especially in tech-dependent companies. Internal sources of technology. Capability and focus towards research and development. Environmental effects of technology. Technology in areas like communication, infrastructure and day-to-day living. Technological obsolescence. Technology adopted by the competitors and the industry in general. Innovations in products and processes.

Technology can be an Opportunity or a Threat to an Organisation:

Technology is the most dynamic of all the environmental factors. An individual enterprise is concerned with the dynamics of its products & process technology, research and development activities in the industry and elsewhere, innovations in products and processes, technological obsolescence etc. Changes in technology vitally affect the enterprises costs, probability, plant location decisions, product lines, growth and development. Technology can act as an opportunity or threat to a business. Technology would be an opportunity to a business if it can take advantage of it by adopting faster than the competitors. Technological innovations can reduce the cost of operations in the organisation. For example, an organisation can reduce its cost of operation by developing a low cost technology that automates manual work and saves time and money. Technological changes can be a threat to an organisation if the organisation is not capable in adopting changes in a reasonable period of time. Organisations which lag behind in adopting technological changes fade away from market. For example an innovative and modern production technology can be a threat to the organisation if its competitors adopt faster than it. The following are the recent developments in technology which have influence a number of products and services in various markets, they are: 1. Age of touch computing ATMS, mobiles etc 2. E- Commerce Virtual shopping 3. Other innovations SMS etc.,

Relevant Environment:
The relevant environment refers to primacy business focus of the organization. The relevant environment encompasses some of the elements from micro environment and some of the elements of macro environment which are of interest to the organization. It should be noted that it is impossible to take advantage of all the opportunities that may be present in micro and macro environment by the organisation, therefore, it has choose the areas in which the organisation can excel and achieve easily. The relevant environment has to be considered along with the internal environment i.e. the strength and weakness, of the organisation to analyse the impact of the opportunities and threats present in the environment.

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Organisation

Micro Environment

Macro Environment

Relationship between organization and Environment

Environment-Organisation Relationship:
In relation to an individual business, the surrounding environment offers a range of opportunities, constraints, threats and pressures, and thereby influences the structure and functioning of the enterprise. As a sub-system, the business enterprise draws certain inputs of resources, information and values from the larger environment system. It transforms there into outputs of products, services, goals and satisfactions and exchanges them with or transmits them into the environment. In the process, it generates energy and sustains itself. The relationship between a business and its environment may be discussed under the major areas as listed here: 1. Exchange of Information: The organisation scans the environmental variables and generates important information and uses it for planning, decision-making and control purposes. Information generation is one way of getting over the problems of uncertainty and complexity of the environmental components. Information is to be generated on economic activity and market conditions, related technological developments, social and demographic variables, politicalgovernmental policies and postures and competitive information, among others. Both current and projected information is important for the organisation. The organisation engages in forecasting for making assumptions about the future conditions. In the course of this process, there is an interaction between the organisation, its environment and other .factors. Also the business entity itself transmits information to several agencies either voluntarily, inadvertently or legally. Also, there may be a compulsory requirement of furnishing information to some parts of the environment, namely, government, law, suppliers, customers, etc.

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2. Exchange of Resources: The organisation receives inputs like finance, materials, manpower, equipment, etc., from the environment both external and internal. It sustains itself by employing the above inputs for involving or producing output of product and services. The organisation interacts with the factor markets for purposes of getting its inputs; it competes sometimes and collaborates sometimes with other organisations in the process of ensuring a consistent supply of inputs. The business concern is dependent on the environment for disposal of its output of products and services to a wide range of clientele. This is also an interaction process--perceiving the needs of the environment and catering to them, satisfying the expectations and demands of the clientele groups, such as customers, employees, shareholders, creditors, suppliers, local community, general public, etc. These groups tend to press on the organisation for meeting their expectations, needs and demands, and for upholding their values and interests. The organisation is obliged to allocate or divert some of its surpluses for meeting these demands. 3. Exchange of Influence and Power: Another area of organisational environmental interaction is in the exchange of power and influence. The environment holds considerable power over the organisation by virtue of its control over the resources, information and other inputs. It offers a range of opportunities, incentives and rewards on one hand and a set of constraints, threats and restrictions on the other. In both ways, the organisation is conditioned and constrained. The environment is also in a position to impose its will over the company and force it to fall in line. Government control over the company is an example of one such power relationship. Other environmental factors, both macro and micro exert considerable influence over the planning and decision-making process of any organisation. It follows that the dependence and influence between the organisation and the environment is reciprocal to a very large extent. They are dependent, inter-dependent and independent in different spheres. Similarly, they seek to exercise power, influence and control over each other, in both benevolent and malevolent ways. Dependence and power are reciprocals. Organisational dependence on the environment means environmental power and control over the organisation. The converse is also true. D ependence also means some amount of conflict. Inter-dependence sometimes brings about collaboration and cooperation between the organisation and the environment.

Globalisation:
Introduction:
Globalisation gathered momentum since 1980 due to political and economic changes that took place in the communist and socialist countries, the economic reforms introduced in developing countries, the latest multilateral trade agreement and the technological and communication revolutions in the world.

Meaning and Definition of Globalisation:

Globalisation is defined the Wikipedia as increasing global connectivity, integration and interdependence in the economic, social, technological, cultural, political and ecological spheres.

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The International Monetary Fund (IMF) has defined globalisation as the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology. Thus, globalisation refers to process of integration of the world into one huge global market. At the organisation level, globalisation means two things: (a) the organisation commits itself heavily with several manufacturing locations around the world and offers products and services in several countries; (b) It also means ability to compete in domestic markets with foreign competitors.

International or Global Environment:

The world is operating like a global village. Political boundaries are vanishing and international trade barriers have reduced, making trade easier between countries. Keeping this in mind, it becomes imperative for companies to study a wide variety of differences that exist between the countries, so that they may be able to do business in an easy and simpler way. Certain factors that need to be studied include the following: 1. The culture of a place. 2. The accepted practices, norms and ways of greeting people in that country. 3. Work timings. 4. Specific manners and mannerisms. 5. The climate and language of that place. 6. Specific taxes and import/export tariffs. 7. Tastes and preferences of the people. Multinational company (MNC) or Transnational Company (TNC): A multinational or Transnational company is a company which operates in more than one country to gain production, marketing, technology, financial, human resource, and research and development advantages in its costs and reputation over the domestic competitors. Features of Multinational or Global Company: 1. Global company is a conglomerate of multiple units but all the units are linked by common ownership. 2. Multiple units draw from a common of resources, such as money, credit, information, patents, trade names and control systems. 3. The multiple units respond to some common strategy.

Reasons for Companies Going Global

1. Rapid shrinking of time and distance across the globe owing to the significant development of transportation and telecommunication facilities. 2. Inadequacy of and low purchasing ability in the domestic markets. 3. The short span of product life-cycle in the domestic market. 4. To have diversified portfolio of markets.
5. To secure reliable and cheap inputs like raw material, finance and human resources. 6. Due to political stability in some countries and political disturbances in other countries.

7. To reduce high transportation costs. 8. To set up plants close to the raw material.

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Significant Developments Responsible for Transnational Operations of Business organisations: 1. Increasing emphasis on market forces and a growing role for the private sector in nearly all developing countries. 2. Rapidly changing technologies that are transforming the nature, organization, an location of international production. 3. The globalization of firms and industries. 4. The rise of services to constitute the largest single sector in the world economy and regional economic integration, which has involved both the world's largest economies as well as select developing countries.

Impact of International Environment on Domestic Business

Global environment consists of international political environment, policies of various governments, level of technology, social and cultural factors, level of economic development of countries, level of industrial development etc, has its impact on the business organisations of a domestic country. The impact is as follows: 1. Configuring Anywhere in the World: A Multinational company (MNC) can choose the location of its plants or business units in different countries on the basis of availability of raw material, consumer markets, availability of cheap labour, etc. Thus, a Multinational company competes with the domestic company for inputs as well as selling the output. 2. Interlinked and Inter-dependent Economies: Economic policy of most of the nations is to develop the countries through inter-linkage and interdependence. Each countrys prosperity is interlinked with the rest of the world. Therefore, no nation can exist in isolation and grow in globalised economy. 3. Minimization of Trade and Tariff Barriers: The recent trend towards globalisation in most t the nations in the world resulted in minimization of trade and tariff barriers. Consequently, the protection provided to the home industry has been withdrawn. Therefore, the domestic industry is affected by the quality, price and convenience of the foreign products and services. 4. Effect on Related Industries and Ancillary Units: Globalisation may render many companies sick and defunct. This effect is more in case of ancillary industrial units and small scale Industrial units compared to large scale industrial units. Globalisation of Indian economy n 1991 affected badly many ancillary industrial units. 5. Infrastructural Resources and Inputs at International Prices: The prices of infrastructural resources like banking, financing, transportation and telecommunications and inputs like raw materials and human resources adjust at international prices. In other words, prices of these factors which were lower before globalisation would increase due to increase in demand for the same. 6. Increasing Trend Towards Privatization: Governments in many countries recently started withdrawing their capital from public sector industrial units and/or privatizing these units after globalisation.

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7. Entrepreneur and his Unit Have a Central Economic Role: The trend of shifting the business from the bureaucrat to the entrepreneur has started consequent upon globalisation of business. 8. Mobility of Skilled Resources: The traditional factors of production viz., land, labour, capital and organisation are no more immobile. Globalisation has resulted in the inflow of these factors into the potential developing countries. 9. Market Side Efficiency: Integration of global markets implies that costs, quality, processing time and terms of business become dominant competitive drivers. 10. Formation of Regional Blocks: A final corollary to globalisation is the formation of trade blocks like North American Free Trade Area (USA, Canada and Mexico), European Economic Community and South Asian Preferential Trading Agreements. These regional blocks provide the opportunities to the business from within and create threats to the business from other areas.

Strategic Responses to the Environment:

There is a deep relationship between an organisation and the environment hence, any change in the environment will have a definite impact on the organisation. The organisation is compelled to respond to the changes in the environment. The response can be of three forms: 1. Minimum Resistance or Conservative Response: Organisations which adopt satisfying approach to changes in environment are known as conservative enterprises. They are goal maintaining enterprises. Such organisations simply prefer to survive by way of coping with their external environmental changes. They are passive in their behaviour. 2. Cautious Response: Organisations which intelligently respond to changes in environment are known as cautious response organisations. They are also known as adaptive organisations because they quickly adapt to changes in environment. Such organisations seek to monitor the changes in the environment, analyse their impact on the goals and activities and translate their assessment into strategies for survival, stability and strength. 3. Dynamic or Aggressive Response: Organisations which adopt optimising approach to achieve their goals with the changes in environment are known as aggressive enterprises. Their feedback systems are highly dynamic and powerful. They not only ward off threats but also convert threats into opportunities. They are very much aware of their strengths and weakness.

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Competitive Environment:
In addition to the general and operating environment as well as the industry environment, managers should also analyse the competitive environment because the nature of competition in an industry and its profit potential are directly influenced by the competitive forces operating in that industry. The degree of competition in an industry is influenced by a number of forces. To establish a strategic agenda for dealing with these forces and grow despite them, a firm must understand: 1. How these forces work in an industry? 2. How they affect the firm in its particular situation? The essence of strategy formulation is coping with competition. Intense competition in an Industry is neither coincidence nor bad luck. Every business faces stiff competition. Whatever their collective strength the corporate strategist's goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favour. The strategist must delve below the surface and analyze the underlying sources of competition. Knowledge of these underlying sources of competition helps: 1. 2. 3. 4. 5. To provide the groundwork for a strategic agenda To highlight the competitive strengths and weaknesses of the company To animate the positioning of the company in its industry To clarify the areas where strategic changes may yield the greatest payoff and To highlight the sources of greatest significance, either as opportunity or threat.

Understanding these sources will also help in considering areas for diversification. The strongest competitive forces determine the profitability of an industry, so competitive analysis is of crucial importance in strategy formulation. A better understanding of the nature of competition can be done by examining the following aspects: 1. The type of competitors 2. Competitors strategy 3. Competitors performance , strengths and weakness 4. Competitors reaction

Co-operation in competitive environment:

The classical view of competition highlights that in a competition ones loss is anothers gain. Classical view of competition has been supplement by theories that incorporate the element of co-operation along with competition. This seems like a paradox. However, cooperation among business entities in a competitive environment is a fact today and it has become possible due to organisations ability to evolve and co-exist. Co-operation in a competitive environment among the business entities bring in the following mutual advantages: 1. Co-operative links with other firms, enable an enterprise to focus in developing its core competence. 2. Co-operative Research and development, with merger of technologies and production skills of different firms, enhances innovativeness of both firms. 3. Co-operative relationship among firms, help them to overcome problems across manufacturing, marketing, product development, cost minimization etc.

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Co-operation in competitive environment can be of Four types:

1. 2. 3. 4. Cartelization or understanding among oligopolists Kieretsus Family ownership co-operation Consortiums

1. Cartelization or Understanding among Oligopolists:

Cartelization is coming together of a few manufacturers or sellers of products or service in a oligopolistic market to maximize their profits and minimize costs. Indirectly it leads to a monopoly situation. Organisation of the oil exporting countries is a good example of cartel. Cartels are formed to decide market shares, prices and profits for mutual benefit and gain.

2. Kieretsus:
Kieretsu literally means grouping of enterprises. A keiretsu is a set of companies with interlocking business relationships and shareholding. Kieretsus is a large co-operative network of businesses. Kieretsus greatly enhances individual member s ability to compete efficiently in their respective industries. This type of co-operative business is fair and ethical. A Kieretsu is a loosely-coupled group of companies, usually in related industries. For example, Pizza hut selling coca cola products, Book stalls selling stationery products etc. Kieretsu members are peers and may own significant amounts of each others stock and have many board members in common, however, members remain independent companies in their own right; its primary purpose is not to share information or agree industry standards but to share purchasing, distribution or any other function. The only strategy they have in common is to prefer to do business with other Kieretsu members, both when buying and when selling. However, Kieretsus are different from conglomerates. Conglomerates: Conglomerate is a group of companies under the same owner. In conglomerates same owner owns a substantial capital in different companies. All the strategic decisions are centralized and all the companies involved draw the resources from the common pool of resources of conglomerate. For example, Tata group of companies, Birla group of companies etc in India. Difference between Kieretsus and conglomerates: Kieretsus Conglomerates 1. Kieretsus is a set of companies with Conglomerate is a group of companies interlocking business relationships and under the same management. shareholding 2. In Kieretsu members remain independent In conglomerate all member companies in their own right. dependent on one owner. 3. In Kieretsus the primary purpose is to share In conglomerate the member companies the expertise of members in the functional share and exchange a number of things to areas to derive maximum mutual benefit. achieve common corporate purpose. 4. In Kieretsu all the member companies have In conglomerate all the member independent strategies. They come together companies are directed by a common and co-operate with one another for mutual corporate strategy.
benefit.

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5. In Kieretsus every member company acquires In conglomerate all the member its resources independently because every companies draw resources from the member company different. common pool of resources.

6. Kieretsus were formed to fight the common enemy after World War II in Japan. 7. Kieretsus are commonly found in Japan. They are not found in other countries.

Conglomerates are usually formed through expansion strategy of the corporate. Conglomerates are commonly found in India and western countries.

3. Family ownership co-operation Traditionally, a large number of businesses were controlled and managed by families. Even to this date in India, a large number of businesses are family managed businesses. For example, Tata companies, Reliance group, Birla group etc. Co-operation in business owned by same family is normally a natural process. Many important decisions are made by family members who manage the business. The ideologies and interest of family members play a significant role in influencing the managerial decisions and other activities of the business. Sometimes, quarrels and conflicts among the managing members of the family on family matters may disturb them which may have adverse effect on the business. Succession is a sensitive issue in business. History has proved time and again that successions in business were full of conflicts but in some cases it has taken place in a smooth and peaceful manner.

4. Consortium:
Consortium is the group of different independent companies coming together to achieve a common purpose efficiently. Different companies come together to create ability to complete a big project effectively . Consortium brings in synergy which will help in achieving the big tasks in a highly efficient manner. Every member company will utilise its expertise to ensure the completion of project. For example, the construction of Airport requires a variety of tasks to be performed in logical, co-operative and co-ordinated manner, one company may not be able to complete such as a big project effectively, therefore, different companies with expertise in their area of work such as construction company, electrical company, furniture company, interior decoration company, steel company etc can come together and form consortium to achieve the task of construction of Airport efficiently.

Porters Five Forces Model Competitive Analysis:

Introduction:
In essence, the job of the strategist is to understand and cope with competition. However, mangers define competition too narrowly, as if it occurs only among today's direct competitors. Yet competition for profits goes beyond established industry rivals. It includes four other competitive forces as well: customers, suppliers, potential entrants and substitutes. The Five Forces model developed by Michael E. Porter has been the most commonly used analytical tool for examining competitive environment.

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According to this model, the intensity of competition in an industry depends on five basic forces. These five forces are: 1. Threat of new entrants 2. Intensity of rivalry among industry competitors 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Threat of substitute products and services. Each of these forces affects a firm's ability to compete in a given market. Together, they determine the profit potential for a particular industry. To understand industry competition and profitability, one must analyze the industry's underlying structure in terms of the five forces, as shown in the figure below:
Potential new entrants

Bargaining power of suppliers

Industry competitors

Rivalry among existing firms

Bargaining power of buyers

Threat of Substitute products or services

Porters Five Forces Model of Competition

According to Porter, the stronger each of these forces are, the more limited is the ability of established companies to raise prices and earn greater profits. With Porter's framework, a strong competitive force can be regarded as a threat because it depresses profits. A weak competitive force can be viewed as an opportunity because it allows a company to earn greater profits. The strength of the five forces may change with time as industry conditions change. Understanding the competitive forces, and their underlying causes, reveals the roots of an industry's current profitability, while providing a framework for anticipating and influencing competition and profitability over time. Understanding industry structure is also essential to effective strategic positioning.

Steps for Competitive Analysis by Porters Five Forces Model:

The competitive analysis is performed by using porters five forces model in three steps: Step 1: Identify the specific competitive pressures associated with each of the five forces. Step 2: Determine how strong the pressures comprising each of the five forces are (fierce, strong, moderate to normal, or weak).

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Step 3: Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits.

Forces that Shape Competition:

The configurations of the five forces differ from industry to industry. The strongest competitive force or forces determine the profitability of an industry and becomes the most important to strategy formulation.

A. The Threat of New Entrants:

The first of Porter's Five Forces model is the threat of new entrants. New entrants bring new capacity and often substantial resources to an industry with a desire to gain market share. Established companies already operating in an industry often attempt to discourage new entrants from entering the industry to protect their share of the market and profits.

Barriers to Entry:
Entry barriers depend on the advantages that existing companies have relative to new entrants. There are seven major sources: 1. Economies of Scale: These are relative cost advantages associated with large volumes of production, that lower a company's cost structure. The cost of product per unit declines as the volume of production increases. This discourages new entrants to enter on a large scale. If the new entrant decides to enter on a large-scale to obtain economies of scale, it has to bear high risks associated with a large investment. A further risk is that the increased supply of products will depress prices and results in vigorous retaliation by established companies. For these reasons, the threat of new entrants is reduced when established companies have economies of scale 2. Product Differentiation: Brand loyalty is buyer's preference for the differentiated products of any established company. Strong brand loyalty makes it difficult for new entrants to take market share away from established companies. It reduces threat of entry because the task of breaking down well-established customer preferences is too costly for them. 3. Capital Requirements: The need to invest large financial resources in order to conipete can deter new entrants. Capital may be necessary not only for fixed assets, but also to extend customer credit, build inventories and fund start-up losses. The barrier is particularly great if the capital is required for unrecoverable expenditure, such as up-front advertising or research and development. While major corporations have the financial resources to invade almost any industry, the capital requirements in certain fields limit the pool of likely entrants. 4. Switching Costs: Switching costs are the one-time costs that a customer has to bear to switch from one product to another. When switching costs are high, customers can be locked up in the existing product, even if new entrants offer a better product. Thus, the higher the switching costs are, the higher is the barrier to entry.

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5. Access to Distribution Channels: The new entrant's need to secure distribution channel for the product can create a barrier to entry. The established companies have already tied up with distribution channels. For example, a new food item may have to displace others from the supermarket shelf via price breaks, promotions, intense selling efforts or some other means. The more limited the wholesale or retail channels are, tougher will be the entry into an industry. 6. Cost Advantages Independent of Size: Some existing companies may have advantages other than size or economies of scale. These are derived from: a. Proprietary technology b. Preferential access to raw material sources c. Government subsidies d. Favorable geographical locations e. Established brand identities f. Cumulative experience 7. Government policy: Historically, government regulations have constituted a major entry barrier into many industries. The government can limit or even foreclose entry into industries, with such controls as license requirements and limits on access to raw materials. The liberalization policy of the Indian government relating to deregulation, delicensing and decontrol of prices opened up the economy to many new entrepreneurs.

B. Intensity of Rivalry among Competitors:

The second of Porter's Five Forces model is the intensity of rivalry among established companies within an industry. Rivalry means the competitive struggle between companies in an industry gain market share from each other. Intense rivalry lowers prices and raises costs. It squeezes profits out of an industry. Thus, intense rivalry among established companies constitutes a strong threat to profitability. Alternatively, if rivalry less intense, companies may have the opportunity to raise prices or reduce spending on advertising etc. which leads to higher level of industry profits. Intensity of Rivalry is Greatest Under the Following Conditions: 1. Numerous competitors or equally powerful competitors: When there are many competitors in an industry or if the competitors are roughly of equal size and power, 'the intensity of rivalry will be more. Any move by one firm is matched by an equal countermove. In such situations rivals find it hard to avoid poaching business. 2. Slow industry growth: Slow industry growth turns competition into fight because the only path to growth is to take sales away from a competitor. 3. High fixed but low marginal costs: This creates intense pressure for competitors to cut prices below their average costs even close to their marginal costs, to steal customers.

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4. Lack of differentiation or switching costs: If products or services of rivals are nearly identical and there are few switching costs, this encourages competitors to cut prices to win new customers. 5. Capacity augmentation in large increments: If the only way a manufacturer can increase capacity is in a large increment, such as building a new plant, it will run that new plant at full capacity to keep its unit costs low. Such capacity additions can be very disruptive to the supply/demand balance and cause the selling prices to fall throughout the industry. 6. High exit barriers: Exit barriers keep a company from leaving the industry. Exit barriers can be economic, strategic or emotional factors that keep firms competing even though they may be earning low or negative returns on their investments. If exit barriers are high, companies become locked up in a non-profitable industry where overall demand is static or declining. Excess capacity remains in use, and the profitability of healthy competitors suffers as the sick ones hang on.

Common Exit Barriers:

1. Investment in specialized assets like plant and machinery are of little or no value, and cannot be put to alternative use. So, they have to be continued. 2. High costs of exit such as retrenchment benefits, etc. that have to be paid to the redundant workers when a company ceases to operate. 3. Emotional attachment to an industry keeps owners or employees unwilling to exit from an industry for sentimental reasons. 4. Economic dependence on the industry when the firm depends on a single industry for revenue and profit.
5. Government and social pressures discourage exit of industries out of concern for job loss.

6. Strategic interrelationships between business units and others prevent exit because of shared facilities, image and so on. C. Bargaining Power of Buyers: The third of Porter's five competitive forces is the bargaining power of buyers. Bargaining power of buyers refers to the ability of buyers to bargain down prices charged by firms in the industry or driving up the costs of the firm by demanding better product quality and service. By forcing lower prices and raising costs, powerful buyers can squeeze profits out of an industry. According to porter, buyers are most powerful under the following conditions: 1. There are few buyers: If there are few buyers or each one does bulk purchases, then they have more bargaining power. Large buyers are particularly powerful in industries like telecommunication equipment, off-shore drilling, and bulk chemicals. High fixed costs and low marginal costs increase the pressure on rivals to keep capacity filling through discounts. 2. The products are standard or undifferentiated: If the products purchased from the firm are standard or undifferentiated, the buyers can easily find alternative sources of supplies. Then buyers can play one company against the other, as in commodity grain markets.

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3. The buyer faces low switching costs: Switching costs lock the buyer to a particular firm. If switching costs are low, buyers can easily switch from one firm's product to another. 4. The buyer earns low profits: If the buyer is under pressure to trim its purchasing costs, the buyer is price sensitive and bargains more. 5. The quality of buyer's products: If the quality of buyer's product is little affected by industry's products, buyers are more price sensitive. Most of the above sources of buyer power can be attributed to consumers as a group as well as to industrial and commercial buyers.

D. Bargaining Power of Suppliers:

The fourth of Porter's Five Forces model is the bargaining power of suppliers. Suppliers are companies that supply raw materials, components, equipment, machinery and associated products. Powerful suppliers make more profits by charging higher prices, limiting quality or services or shifting the costs to industry participants. Powerful suppliers squeeze profits out of an industry and thus, they are a threat. Suppliers Bargaining Power will be high Under the Following Conditions: 1. Few Suppliers: When the supplier group is dominated by few companies and is more concentrated than the firms to whom it sells, an industry is called concentrated. The suppliers can then dictate prices, quality and terms. 2. Product is Differentiated: When suppliers offer products that are unique or differentiated or built-up switching costs, it cuts off the firm's options to play one supplier against the other. 3. Dependence of Supplier Group on the Firm: When suppliers sell to several firms and the firm does not represent a significant fraction of its sales, suppliers are prone to exert power. In other words, the supplier group does not depend heavily on the industry for revenues. Suppliers serving many industries will not hesitate to extract maximum profits from each one. 4. Importance of the Product of the Firm: When the product is an important input to the firm's business or when such inputs are important to the success of a firm's manufacturing process or product quality, the bargaining power of suppliers is high. 5. Threat of Forward Integration: When the supplier poses a credible threat of integrating forward, this provides a check against the firm's ability to improve the terms by which it purchases. 6. Lack of Substitutes: The power of even large, powerful suppliers can be checked if they compete with substitutes. But, if they are not obliged to compete with substitutes as they are not readily available, the suppliers can exert power.

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E. Threat of Substitute Products:

The fifth of Porter's Five Forces model is the threat of substitute products. A substitute performs the same or a similar function as an industry's product. Video conferences are a substitute for ravel. Plastic is a substitute for aluminum. E-mail is a substitute for a mail. All firms within an industry compete with industries producing substitute products. The existence of close substitutes is a strong competitive threat because this limits the price that companies in one industry can charge for their product. If an industry does not ward off the substitutes through product performance, marketing, price or other means, it will suffer in terms of profitability and growth potential in the following circumstances: 1. The producers of substitute offer an attractive price and performance. 2. The buyers switching costs to substitutes is low comparatively.

Merits of Porters Five Forces Model:

1. The five forces model is a powerful tool that helps managers to think strategically. 2. It leads managers to think systematically about the way their strategic choices will both be affected by the forces of competition and how their choices will affect the five forces and change conditions in the industry. 3. It helps a firm not only to evaluate the profit potential of an industry but also to consider various ways to strengthen its position vis-a-vis the five forces. 4. It helps managers to decide whether the firm should remain in or exit from the industry.

Limitations of Porters Five Forces Model:

Despite being the most popular and widely used framework for competitive analysis, Porter's Forces model suffers from the following limitations: 1. Porters five forces model ignores complementary goods. Complementary goods can affect the product significantly and can act as an important force in the market for or against the product. 2. It is short-sighted and implicitly assumes a zero-sum game. It overlooks the many potential benefits of developing constructive win-win partnerships with suppliers and customers. Establishing long-term mutually beneficial relationships with suppliers improves a firm's ability to implement just-in-time inventory systems. Further, by working together as partners, suppliers and manufactures can provide the greatest value at the lowest possible cost. 3. The model does not take into account the fact that some firms, most notably the large ones, can often take steps to modify the industry structure, thereby increasing their prospects for profits. 4. A firm that competes in many countries typically must be concerned with multiple industry structures. The nature of industry competition in the international area differs among nations, and may present challenges that are not present in a firm's host country. The limitations notwithstanding, a thorough analysis of the industry through the five forces model is a critical first step in understanding competitive behaviour within an industry In a general sense, Porter's five forces model provides insights into profit seeking opportunities, as well as potential challenges, within an industry. For the above reasons, Porter's Five Forces model has been acclaimed as the most popular and useful model for competitive analysis of an industry.

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