MODULE 1

BUSINESS ENVIRONMENT

Environment of Business
Environment refers to something external to an individual or an organization

Business Environment
Business Environment refers to all external factors which have direct or indirect bearing on the activities of business The survival of a business firm depends on its innate strength resources at its command and its adaptability to the environment and the extent to which the environment is favorable to development of the firm.

Environmental Analysis
Environmental Analysis and diagnosis give strategists time to anticipate opportunities and to plan to take optional responses to these opportunities. It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to a firms advantage. Firms which systematically analyze and diagnose the environment are more effective than those which do not. Process of Environmental Analysis: The analysis consists of four steps: Scanning : Detect early signals of possible environmental change and detect environmental change already underway. Monitoring : Purpose of monitoring is to assemble sufficient data to discern whether certain trends are emerging, identification of the trends and identification of areas for further scanning. Forecasting : It is concerned with developing projections of the direction, scope and intensity of environmental change. Assessment : To determine implications for the organization's current and potential strategy.

Environmental Scanning
Environmental Scanning refers to the process of gathering large amount of information to measure and study the changes in the environment.

Modes of Scanning
Systematic Scanning- Information related to markets and customers, changes in legislation, regulations which have a direct impact on organizational activities, government policies, etc Ad-hoc Scanning- Conducting special surveys and studies to deal with environmental issues from time to time Processed form Scanning- Using information in a processed form available from different sources inside and outside the organization

Features of Business Environment

Sum total of all factors external to the business firm and that greatly influence their functioning Dynamic in nature Includes customers, competitors, suppliers, government, social, cultural, political, technological and legal conditions. Changes are unpredictable (exact nature) Differs from place to place, region to region, etc.

Importance of Business Environment

Determining Opportunities and Threats Giving Direction for Growth Continuous Learning Image Building Meeting Competition Identifying firms strength and Weakness

Economic Environment
a) Economic Conditions (i) Gross Domestic Product (ii) Per Capita Income (iii) Market for goods and services (iv) Availability of capital (v) Foreign Exchange Reserves (vi) Growth of foreign trade (vii) Strength of Capital Market

b)

Economic Systems (i) Capitalism (ii) Socialism (iii) Mixed Economy Economic Policies (i) Monetary Policy (ii) Fiscal Policy (iii) Foreign Trade Policy (iv) Industrial Policy

c)

Non-Economic Environment
a) b) c) d) e) f) Social Environment Political Environment Legal environment Technological Environment Demographic Environment Natural Environment

Diagrammatic Representation of Business Environment

Business Environment

Internal Environment

External Environment

Micro Environment

Macro Environment

BUSINESS ENVIRONMENT Macro Environment Micro Environment

Internal Environment
Financiers Suppliers Customers Competitors Public Mktg Intermediaries Mission / Objectives Management Structure Internal Power Relationship Physical Assets & facilities
Economic Technological Global Demographic Socio-Cultural Political

Business Decision
Company image Human resources Financial Capabilities Technological Capabilities Marketing Capabilities

Internal Environment
Includes 5 Ms i.e. man, material, money, machinery and management, usually within the control of business. According to the change in the functioning of enterprise business can make changes in the above factors. Vision Mission Objectives Management Structure Human Resources Financial Factors Company Image and Brand Equity

External Environment
Includes factors which are beyond control of Business Enterprise. Micro Environment The Micro environment consists of different types of stakeholders customers, employees, suppliers, marketing intermediaries, competitors. It is also known as the Task Environment and Operating Environment and has a direct bearing on the operations of the firm. Changes in the micro environment will directly affect and impinge on the firm's activities. Macro Environment The macro environment consists of factors which are beyond the control of the business. There is a symbiotic relationship between business and the environmental factors, environmental factors are dynamic and a particular business firm, by itself, may not be in a position to change its environment. Macro Environment includes: Political Environment Technological Environment Socio-cultural Environment Global Environment.

Technological Environment
Technological is the systematic application of scientific or other organized knowledge to practical tasks. Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get a competitive advantage Technology reaches people through business Helps in increased productivity Business needs to spend on R & D and keep up with the technological advances around them Technology leads to introduction of new products and older products becoming outdated and redundant. Technological advances leads to high expectations of consumers in terms of quality Leads to system complexity Demand for capital

Political Environment
Political Environment refers to the influence exerted by the three political institutions ie. legislature, executive and judiciary in shaping, directing, developing and controlling business activities. The constitution of a country Political Organization Political Stability Image of the country and its leaders Foreign Policy Laws governing business Flexibility and adaptability of laws The Judicial System

Economic Environment
Economic Environment refers to all forces which have an economic impact on Business. The economic environment consists of the demand dynamics, supply situation, pricing factors, degree of competitiveness, and impact of profitability. It includes the fiscal policy, monetary policy and the taxation policy, the FDI norms, the investment criterion and financing decisions. Economic environment includes: . Growth strategy Industry Agriculture Infrastructure Money and Capital Markets Per capita and national income Population New Economic Policy

Global Environment:
The global environment refers to those factors which are relevant to business, such as the WTO principles and agreements; other international conventions/ treaties / agreements / sentiments in other countries etc. For eg hike in crude oil prices has a global impact etc. World is becoming one market Improving quality Competition from MNCs Capital and technology transfers Deciding which markets to enter and what products to manufacture Adjusting the management process

Socio-Cultural Environment:
Culture creates people Culture and globalization Culture determines peoples attitude to business and work. Caste system Spirit of collectivism Education Ethics in business Social responsibility Social audit Corporate governance