ASSIGNMENT – BUSINESS ENVIRONMENT

Q.1. Define the term ‘business environment’. Explain macro external

environment with examples.
Ans: In general, the term “Environment” means the surroundings or conditions in
which a person, anything that surround us for example air, water, infrastructure,
market business etc...
Business environment is that the sum of all external and internal factors that
affects a business. You should keep in your mind that the external factors and the
internal factors can influence one another and work together to affect a business.
For example, a political party of that particular region can effects your business by
imposing certain laws and taxes. More ever, some external factors are beyond
your control and we have to keep this factors in mind and plan our business
strategies accordingly for smooth functioning of our business. These factors are
usually called external limitation or constraints.
Internal factors are usually from within the organization and that can be easily
controllable factor. For Example, dispute between workers and management,
takeover new technologies etc...
Macro External Environment
Business environment is the combination of all external and internal factors that
affects a business. The external factor covers part of the business or organization,
which usually not in our control within the organization and includes such factors
as political, social, legal, technological and demographic factors.
The external environment consists of the Micro and the Macro environment.
The factors that make up the Macro-Environment are
Economic factors
Demographic forces
Technological factors
Political and legal forces
Social and Cultural forces

Economic Factor:
The economic environment is of factors that effects the customers/buyers
purchasing and expenditure. Economic factor consists of inflation rate, income,
bank interest rates and unemployment. If there is a change in the above stated
facts, there will be a definite impact on consumers purchase and spending power
for example Inflation If a person low income affects his spending indirectly
affecting the organization sales.
Demographic Forces:
Demographic helps the organization to identify the locality where the
organization established its human population in size occupation and race and
other criteria. It helps marketers to find potential customers for their products.
Technological Factor:
The technological factor is referring to the organization adapted technology. If it is
old, they have to adapt new advance technology to produce latest products in
less cost. Technological factor is most manageable and controllable factor.
Adapting new technology is to turn these advances into new opportunities and a
competitive world.
Political & Legal Forces:
Organisation has to operate within the government laws and regulations. Factors
that contains in the macro environment are taxation, tariffs, trade agreements,
labor regulations, and environmental regulations. The legal environment also
looks that the organization marketers should adapt Green Marketing i.e. using of
recyclable or biodegradable material for packing their products as a part of their
marketing strategy. The legalization also protects organization unfair competition;
it protects consumer’s rights.
Social and Cultural forces:
The social values and culture of an environment play an extent role within the
functioning of the corporate. So when the social environment changes it can have
an immediate or indirect effect on the corporate.
For example, in recent time society has seen a shift, and other people not retire at
the age of 60 but they work five to ten years more after their retirement age. So
this has had an enormous impact on companies.
Q.2. What is economic environment? Explain how global economic
environment has changed over time?
The economic environment consists of external factors during a business market
and therefore the broader economy which will effects a business. Further the
economic environment divides into the microeconomic environment, which
affects business deciding like individual actions of firms and consumers and
therefore the macroeconomic environment, which affects a whole economy and
every one of its participants. Many economic factors act as external restrictions
on your business, which suggests that you simply have little, if any, control over
them. Let's take a glance at both of those broad factors in additional detail.
Macroeconomics
Macroeconomic effects are broad economic factors that either directly or
indirectly affect the whole economy and every one of its participants, including
your business. These factors include such things as:
1. Interest rates
2. Taxes
3. Inflation
4. Currency exchange rates
5. Consumer discretionary income
6. Savings rates
7. Consumer confidence levels
8. Unemployment rate
9. Recession
10.Depression
Microeconomic
Microeconomic factors effects how your business will make decisions. Unlike
macroeconomic factors, these factors are far less broad in scope and don't
necessarily affect the whole economy as an entire. Microeconomic factors
effecting a business include:
1. Market size
2. Demand
3. Supply
4. Competitors
5. Suppliers
6. Distribution chain e.g. Retail stores

Global economy environment has changed over a time.

The global economy is seen since many centuries when traders
from the world came together to exchange goods. From the tradition of
barter system or mercantilism up to the present GATT (The General
Agreement on Tariffs and Trade) round, promoters have had
to deal with changes and developments within the economic environment,
including the expansion of regional economic group, all are having intention
toward
increasing cooperation between the grouped nations.
Markets changed by the period of time widely in their size and state of
development worldwide. Now it become be too easy to classify these markets as
rich, poor, developed or less developed, this is usually done for analysis.
World Bank Classification:
World Bank main criterion for analyzing the classification of economics is, Gross
National Income (GNI) or Gross National Product, or GNP per capita.
How GNP is calculated is as follows
Gross National Product: Country’s produced finished goods total market value
and
services within the country in a given financial year (+) plus Income made or
earned
by the resident of that country by doing investments or business abroad (-) minus
the income earned by the other nations people (foreigners) in the domestic
market).
Based on country’s GNI per capita, every economy is classified as low income,
middle income then further divide into lower middle and upper middle, or high
income.

Q. 3 What is meant by political environment of business? Explain the

business risks posed by political system in India.
Business environment refers to the sum total of internal and external forces
operating on an organization. The strengths and weaknesses of a business
venture depend on the environmental factors in which it exist.
Political environment consists of many different, ever changing and interacting
forces that apply a direct influence on business organizations. The structure of
governmental economic ideas, policies, regulations and legislation and
Government’s interest with corporates/business organisations form a part of
political business environment. Organizations have to run businesses within the
norms, governing subsidies, tariffs, import quotas, license etc. as made by the
ruling government.
India is the world’s largest democracy and pride itself of a multiple political
scenario. India has a large no of active political parties at the national as well as
the state or regional levels. These parties are with different ideas and have
variety of political and economic agendas.
Because of different parties in different states and region it is very difficult for the
Government to establish economic changes because of political opposition as in
the case of subsidies. Due to this existing opposing by the political parties in
India, Political system can cause serious damage to the success of any business or
organization.
Following are the major risks and problems that can damage the smooth working
of a business organization in India.
 Even if the Indian economy has been opened up, but still the political
ideologies of some parties creates serious problems to economic
development. Many company has to wrap up their setups due to the
noncompliance with that region political party.
 Economic changes that has been done to boast the economic have often been
stuck by high inflation. Inflation has become a major challenge for
policy makers, which causes throttling the growth in India’s domestic demand-
driven economy by eroding the purchasing power of consumers.
 Increased in Inflation effects banks, banks have had to increase lending rates.
Increase in the cost of credit unfavorably impacts business expansion
plans and this slows down the economy.
 Since a decade time India has been forming a government with coalition
political system at the center and also in many states. Due to this there is
several differences in their coalition partners this causes instability and lack
of attention towards the development of the economy.
 Various economy boosting schemes and proposal has been untouched due
to major opposition. It is a sensitive political issue which groping millions
people’s livelihood
 In many parts of India threat level have always cause a question mark for
business. Political unrest in states like Kashmir, Assam effects the economy.
 Languages also plays a role in boosting the business in India. In India there
are 23 official languages. Different states are having different language
which results in difference in functioning the business in interstate.
 Improper availability of infrastructure like electricity, water supply, sewages
is the another hurdle for the entrepreneurs. So it is very important for the
investor to look this factors before investing or establishing business in the
particular area or region.

Any investor who has to start business in India has to look after the above hurdles
and plan accordingly to overcome the above problems.