CONCEPT

OF ENVIRONMENT
AND
ITS COMPONENTS
 What do you mean by Business Environment???

The environment of any organization is “ the aggregate

of all conditions, events and influences that surround and
affect it.”
Characteristics of Business Environment:
 Complex

 Dynamic

 Multi-faceted

 Far- reaching impact

 Why Study Business Environment

 Development of broad strategies to ensure sustainability

 To foresee the impact of socio-economic changes at the

national and international levels on firm’s ability

 Analysis of competitor’s strategies and formulation of

effective counter measures

 To keep oneself dynamic

FORTUNE 500 – 2013 List
Indian companies – Fortune 500

 8 Indian companies have made it to Fortune 500 list in 2013.

These are:
 Company Ranking in 2013
 Indian Oil Corporation 88
 Reliance Industries 107
 Bharat Petroleum 229
 Hindustan Petroleum 260
 State Bank of India 298
 Tata Motors 316
 ONGC 369
 Tata Steel 471
Overview of Business Environment
TYPES OF ENVIRONMENT
1) INTERNAL ENVIRONMENT
2) EXTERNAL ENVIRONMENT

 Micro environment

 Macro environment
Economic
Non Economic
BUSINES
INTERNAL S EXTERNAL
FACTORS FACTORS
DECISIO
N
INTERNAL ENVIRONMENT
Important internal factors are
1) Value System
The value system of founders and those at the helm of affairs has
important bearing on the choice of business, the mission and
objectives of the organization, business policies and practices.
TCS: Our values: Leading change, Integrity, Respect for the individual,
Excellence, Learning and sharing.

2) Mission and Objectives

The business domain of the company , priorities , direction of
development, business philosophy, business policy etc. are guided
by the mission and objectives of the company
 INTERNAL ENVIRONMENT
3) Management Structure and Nature
The organizational structure, the composition of the Board of
Directors, extent of professionalization of management etc. are
important factors influencing business decisions.

4) Internal Power Relationship

Factors like the amount of support the top management enjoys
from lower levels and workers, share holders and Board of
Directors have important influence on the decisions and their
implementation.
The relationship between the members of Board of Directors is
also a critical factor.
 INTERNAL ENVIRONMENT
5) Human Resources
The characteristics of the human resources like skill, quality,
morale, commitment, attitudes etc. could contribute to the
strength and weakness of the organization.
The involvement, initiative etc. of the people at different
levels may vary from organization to organization.
6) Company Image
The image of the company matters while raising finance,
forming joint ventures or other alliances, soliciting market
intermediaries, entering purchase or sale contracts , launching
new products etc.
EXTERNAL ENVIRONMENT
Two Types
a) Micro Environment

Consists of actors in the company’s immediate

environment, that affects the performance of the
company.
b) Macro Environment
Consists of larger societal forces that affect all the actors
in company’s micro environment.
MICROENVIRONMENT
 Also known as task environment and operating environment
 Include
 The suppliers

 Marketing intermediaries

 Competitors

 Customers

 Public

 More intimately linked with the company than macro factors

 The micro forces need not necessarily affect all the firms in a
particular industry in the same way.
Suppliers
 Those who supply the inputs to the company.
 Source/Sources should be Reliable
 Uncertainty regarding the supply or other supply
constraints compel companies to maintain high
inventories causing cost increase.
 Very risky to depend on a single supplier
 The purchasing department should “market” itself
to suppliers, to obtain favourable treatment during
the periods of shortages.
Customers
 Major task of business is to create and sustain customers
 Different categories of consumers
 Individuals
 Households
 Industries and other commercial establishments
 Government and other institutions
 Depending on single customer is too risky
 Choice of customer should be done by considering
 Relative profitability
 dependability
 stability of demand
 growth prospectus
 extent of competition
Competitors

 A firm’s competitors include not only the other

firms which market the same or similar product
but also all those who compete for the income
of the consumers
 Desirecompetition
 Generic competition

 Product form competition

 Brand competition
Marketing intermediaries
 Firms that aid the company in promoting, selling and
distributing its goods to final buyers.
 Include
 the middlemen who “help the company find customers or
close sales with them”
 Physical distribution firms which “ assist the company in
stocking and moving goods from their origin to their
destinations”
 Marketing service agencies which “assist the company in
targeting and promoting its products to the right markets”
 Financial intermediaries which “finance marketing
activities and insure business risks”
 Vital links between the company and the final
consumers.
Public
 Any group that has an actual or potential interest in or impact
on an organization’s ability to achieve its interests

 E.g. Media public, local public

 Media attack on any company can influence the government

decisions affecting the company.
 Environmental pollution is an issue often taken up by number
of local public
 Public are not always threat to the business.
 Fruitful cooperation between a company and the local public
may be established for the mutual benefit.
 MACRO ENVIRONMENT
MACRO ENVIRONMENT :-
 ECONOMIC
 NON ECONOMIC
 Consists of larger societal forces that affect all the actors in company’s micro
environment-namely
 the demographic,
 natural,
 technological,
 political and
 cultural forces

 Also known as Societal Environment

 The Societal Environment includes general forces that do not directly touch on short-run
activities of the organization but that can, and often do, influence its long-run decisions.
Economic Environment
 Important factors are:
 Economic conditions

 Economic policies

 Economic systems

 Economic condition
 The economic conditions of a country –for example, the
nature of the economy, the stage of development of the
economy, economic resources, the level of income, the
distribution of income and assets, etc.- are among the very
important determinants of business strategies.
Economic Environment
 Economic policies
 Some types or categories of business are favourably affected
by government policy, some adversely affected, while it is
neutral to some others.
 E.g. a restrictive import policy may greatly help the import
competing industries, while a liberalisation of the import
policy may create difficulties for such industries

 Economic System
 The scope of the private business depends on the economic
system.
 The freedom of the private enterprise is the greatest in the
free market economy.
Non Economic Environment
 Political and Government Environment

 Socio- Cultural Environment

 Demographic Environment

 Natural Environment

 Physical and Technological Environment

 International Environment
Political ,Legal & Government
Environment
 The constitution of a country
 Political Organization

 Political Stability

 Image of the country and its leaders

 Laws governing business

 Flexibility and adaptability of laws

 The Judicial System

 Political, Legal & Government
Environment
 Has close relationship with the economic system and economic
policy.
 In many countries regulations to protect consumer interests have
become stronger.
 Some governments specify certain standards for the products to be
marketed in the country; some even prohibit the marketing of certain
products.
 Promotional activities are subject to various types of controls.
 Eg: In India, Advertisement of alcoholic product is prohibited.
and the packages must carry “injurious to health” warnings
Socio-Cultural Environment
 Culture creates people
 Culture and globalization
 Culture determines people’s attitude to
business and work.
 Caste system
 Education
 Ethics in business
 Social responsibility
 Corporate governance
Socio-Cultural Environment
 Major factors are:
 the buying and consumption habits of people,
 their language beliefs and values,

 customs and traditions,

 tastes and preferences,

 Education

 Strategy should be appropriate in the socio-cultural

environment.
 Eg: Nestle brews a very large variety of instant coffee
to satisfy different national tastes
 Even when people of different cultures use the
same product; the mode of consumption,
conditions of use, purpose of use or the perceptions
of the product attributes may vary so much so that
the product attributes, method of presentation,
positioning or method of promoting the product
may have to be varied to suit the characteristics of
different markets.
 E.g.:
Vicks Vaporub, the popular pain balm is used as
mosquito repellent in some tropical countries
 Colour
 Blue: feminine and warm in Holland ; but masculine and cold in
Sweden
 Green: favourite in Muslim world; but represents illness in Malaysia

 Red: popular in communist countries; but represents disaster in Africa

 White : death and mourning in China and Korea; but it expresses

happiness in some countries. Also it is the colour of bridal dress.
Demographic Environment
 Factors:
 Size, age composition, sex composition of
population, family size, educational levels,
economic stratification of the population, language,
caste, religion, etc.
 E.g.
 Decline in birth rates in USA have affected the
demand for baby products. So Johnson &Johnson
repositioned their products like baby shampoo and
baby oil, to the adult segment, particularly to
females.
 Natural environment
 Geological and ecological factors, such as natural
resources endowments, weather and climatic conditions,
topographical factors, location aspects in the global
context, port facilities etc., are relevant to business.

 Topographical factors may affect the demand pattern

 E.g.. In hilly areas with difficult terrain, jeeps may be in
a greater demand than cars.

 Ecological factors have recently assumed great

importance. The depletion of natural resources,
environmental pollution and the disturbance of ecological
balance have caused great concern.
 Physical & Technological
environment
 Business prospects demands availability of certain physical facilities
 E.g. demand for electrical appliances is affected by the extent of
electrification and the reliability of power supply.
 differing technological environment of different markets may call for
product modifications
 E.g. Many appliances are designed for 110 V in USA. They should be
converted for 240v in India
 Technological developments may increase or decrease the demand for
some existing products
 E.g. voltage stabilizers help increase in sale of electrical appliances in
markets characterised by frequent voltage fluctuations
 Introduction of TVs, Refrigerators, etc. with in-built stabilizers
adversely affects the demand for voltage stabilizers.
 International Environment
Important factors that operate at global level which have an impact on
organization are:

 Growth of world economy

 International institutions WTO ILO

 Economic relations between nations

 Global human resource-nature and quality of skills, mobility of labor

 Global technology and quality standards

 Global demographic patterns

 International Environment
 Particularly important for the industries directly depending on
imports or exports and import-competing industries
 Recession, economic boom, liberalization
 Major international developments have their spread effects on
domestic business.
 The oil crisis also promoted some companies to
resort to demarketing
 “demarketing” refers to the process of cutting
consumer demand for a product back to the level
that can be supplied by the firm.
 E.g. The Indian Oil Corporation have publicised
tips on how to cut oil consumption
THANK YOU