The Firm and its
Environment
What is firm and business environment?
Firm
A firm is a for-profit business, usually formed as a
partnership, that provides professional services, such as legal
or accounting services.
Business Environment
All internal and external factors that affect the function of
the company directly or indirectly.
Environmental Forces and
Environmental Scanning
Environmental forces are the factors in the business environment that
influence its operations. This forces are known internal and external
environments.
Environmental Forces and
Environmental Scanning
Internal Environment
Internal environment is a component of
the business environment, which is
composed of various elements present
inside the organization, that can affect
or can be affected with, the choices,
activities and decisions of the
organization.
Environmental Forces and Environmental Scanning
Factors Influencing Internal Environment
1. Value System
components that are a part of regulatory
frameworks, such as culture, climate,
work processes, management practices
and norms of the organization.
Environmental Forces and Environmental Scanning
Factors Influencing Internal Environment
2. Vision, Mission and Objectives
The company’s vision describes its
future position, mission defines the
company’s business and the reason for
its existence and objectives implies the
ultimate aim of the company and the
ways to reach those ends.
3. Organizational Structure
The structure of the organization
determines the way in which activities
are directed in the organization so as to
reach the ultimate goal. These activities
include the delegation of the task,
coordination, the composition of the
board of directors, level of
professionalization, and supervision.
Environmental Forces and Environmental Scanning
Factors Influencing Internal Environment
4. Corporate Culture
Corporate culture or otherwise called an
organizational culture refers to the
values, beliefs and behavior of the
organization that ascertains the way in
which employees and management
communicate and manage the external
affairs.
Environmental Forces and Environmental Scanning
Factors Influencing Internal Environment
5. Human Resources
Most valuable asset of the organization,
success or failure of an organization highly
depends on the human resources
Environmental Forces and Environmental Scanning
Factors Influencing Internal Environment
5. Physical Resources and
Technological Capabilities
refers to the tangible assets of the
organization that play an important role
in ascertaining the competitive
capabilities imply the technical know-
how of the organization.
Environmental Forces and
Environmental Scanning
External Environment
External environment factors have an
indirect influence on the business. The
factors are uncontrollable by the
business. This factor has two types:
Micro environment
Macro environment
Environmental Forces and Environmental Scanning
External Environment
Micro environment
Micro environment refers to the environment
which is in direct contract with the business
organization and can affect the routine activities
of business straight away.
Elements:
Competitors, organization itself, suppliers,
market, intermediaries and customers
Nature: Specific
Environmental Forces and Environmental Scanning
External Environment
Macro environment
Micro environment is the general environment
within the economy that influences the working
performance, decision making and strategy of all
business groups. It is dynamic in nature and it
keeps on changing.
Elements:
Political, economic, socio-cultural, technological,
environmental and legal
Nature: General
Environmental Forces and Environmental Scanning
External Environment
Key Differences of Micro and Macro Environment
• Environment is in immediate contact • Environment not specific to a
with the firm particular firm but can influence the
working of all business group
• The factors of the microenvironment • The macro-environmental factors
affect the particular business only affect all the business entities.
• Factors are controllable by the business • uncontrollable
• Elements of microenvironment affect • It affects indirectly and distantly
directly and regular to the firm
• Study of microenvironmental is • Study of macro-environmental is
described as COSMIC analysis described as PESTEL analysis
Environmental Forces and Environmental Scanning
Environmental Scanning
Environmental scanning refers to the monitoring of the
organization's internal and external environments for
early signs that a change may be needed, to
accommodate potential opportunities or threats, and to
make adjustments to allow the company's strengths to
combat its weaknesses. It is the process of gathering
information about events and their relationships within
an organization's internal and external environments.
There are two types of tools that can be use in
environmental scanning, the SWOT analysis and
PESTEL analysis.
SWOT analysis is a technique for assessing the four
aspects
Environmental Forces and Environmental of business organization such as, strengths,
Scanning
Environmental Scanning weaknesses, opportunities and threats.
1. Strength – an inherent capacity of an organization
which helps it gain a strategic advantage over its
competitors.
2. Weakness – an inherent constraint or limitation which
create a strategic disadvantage for a business.
3. Opportunity – a favorable condition in the
organization’s environment enabling it to strengthen its
position.
4. Threat – an unfavorable condition in the organization’s
environment causing damage to the organization.
Environmental
P Forces and
E Environmental Scanning
S T E L
Environmental Scanning
Political Economic Social Technological Environmental Legal
Political forces in government Determinants of an economy’s These factors focus on the These factors consider the rate These factors relate to the An organization must
for instance can influence the performance that directly social environment and of technological innovation and influence of the surrounding understand what is legal and
way you put the product into impacts on the organization identify emerging trends. This development that could affect a environment and the impact of allowed within the territories
the market. These determine and its profitability. It includes helps a marketer to further market or industry. Factors ecological aspects. With the rise they operate in. They also
could include changes in digital in importance of CSR (Corporate
the extent to which the inflation rate, interest rates, understand their customers’ must be aware of any change
or mobile technology, Sustainability Responsibility),
government and government foreign exchange rates, needs and wants. Factors this element is becoming more in legislation and the impact
policy may impact on an economic growth patterns etc. include changing family automation, research and this may have on business
development. There is often a important. Factors include
organization or a specific demographics, education climate, recycling procedures, operations. Factors include
tendency to focus on
industry. This would include levels, cultural trends, attitude carbon footprint, waste disposal employment legislation,
developments only in digital
political policy and stability as changes and changes in technology, but consideration
and sustainability consumer law, health and
well as trade tariffs, fiscal and lifestyles. must also be given to new safety, international as well as
taxation policies. methods of distribution, trade regulation and
manufacturing and also restrictions.
logistics.
What is the political situation of What are the current economic How much importance does What technological innovations What are the environmental Are there any current legislations
the country and how can affect factors? culture has in the market and are likely to pop up and affect the concerns for industry? that regulate the industry or can
the industry? what are its determinants? market structure? there be any change in
legislations for the industry?
Why business
Environmental organization
Forces and Environmentalneed
Environmental Scanning
to scan the business environment?
Scanning
1. It helps to identify the strengths, weaknesses, opportunities and
threats of the organization.
2. It helps the organization to optimize resources.
3. It ensures survival and growth of the organization.
4. It helps to plan a long-term business strategy.
5. It helps in making productive decision-making.
Local and International Business
Environment of the Firm
The Local Business Environment
Local businesses are those business
entities whose commercial activities are
perform with in a nation.
producer and customers of the firm both
reside in the country
buyer and seller belong to the same
country and so the trade agreement is
based on the practices, law and customs
that are followed in the county
Local and International Business
Environment of the Firm
The International Business Environment
International business environment is
multidimensional including the political risks,
cultural differences, exchange risks, legal and
taxation issues. Therefore, international
business environment comprises the political,
economic, regulatory, tax, social and cultural,
legal, and technological environments.
Local and International Business
Environment of the Firm
The International Business Environment
Forms of Business Environment
• Import and Export
• Licensing
• Franchising
• Joint venture
• Foreign Direct Investment
Advantages of International Business Environment
• Helps in expanding the business,
• Exposure to more customers
• Helps in the proper management of the product life cycle and
• Helps in mutual growth
Local and International Business
Environment of the Firm
The International Business Environment
1. Political Environment
2. Economic Environment
3. Technological Environment
4. Cultural Environment
5. Competitive Environment
Forms of Business Organizations
The International Business Environment
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Stock Corporation
5. Non-Stock Corporation
