What is Business???

Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit. Business enterprises cannot function in isolation. Business enterprises exist in and are surrounded by

an ‘environment’ – the business or organisational environment

Society and business enterprises are mutually dependent. Business enterprises satisfy societal needs.

What do you mean by Business Environment?? “Business Environment encompasses the -climate’ or set

of conditions, economic, social, political or institutional in which business operations are Conducted.”—Arthur M. Weimer

‘‘Business environment is the aggregate of all conditions, events and influences that surround and affect it.”—Keith Davis

“The total of all things external to firms and industries that affect the function of the organisation is called business environment.”—Wheeler

Why study Business Environment??

To keep oneself dynamic. The success of every business depends upon adapting itself to the environment within which it functions.

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.

Importance Of Business Environment Creates framework for business and gives direction for growth.

In identifying opportunities and getting the first mover advantage.

In identifying threats and early warning signals. E.g.. Multinational entering Indian market.

Continuous learning: Environmental analysis makes the tasks of managers easier in dealing with business challenges.

Image Building: By showing their sensitivity towards the environment.

Meeting competition: It helps the firms to analyse the competitors strategies and formulate their own strategies accordingly.

Features of Business Environment

a)Business environment is the sum of all factors external to the business firm and that greatly influence their functioning.

b)It covers factors and forces like customers, competitors, suppliers, government and the social, cultural, political, technological and legal conditions.

c) The business environment is dynamic and unpredictable in nature.

d)Business environment differs from place to place, country to country.

e)Business environment is very Complex and needs a deep and minute study. External environment can not be changed hence it needs adaptability.

f) It’s a challenge and an opportunity for the business man and its study can help make or brake the business.

g)Environment = Opportunities & Threats

Characteristics of Business

Characteristics of

Business

Change

Size

Diversification

Globalization

Technology

Information

Competition

Government Control

BUSINESS OBJECTIVES

BUSINESS GOALS

POWER

QUALITY PRODUCTS &

SERVICES

CHALLENGING

JOY OF CREATION

SERVICE TO SOCIETY

MARKET LEDERSHIP

EMPLOYEE SATISFACTION & DEVELOPMENT

GROWTH

PROFIT Every business enterprise has certain objectives which regulate and generate its activities. Objectives are needed in every area where performance and results directly affect survival and prosperity of a business.

1. Economic ObjectivesBusiness is basically an economic activity. Therefore, its primary objectives are economic in nature. The main economic objectives of business are as follows:

Earning profitsCreating customers Innovations

2.Social objectives

Business does not exist in a vacuum. It is a part of society. It cannot survive and grow without the support of society. Business must therefore discharge social responsibilities in addition to earning profits.According to Henry Ford, "the primary aim of business should be service and subsidiary aim should be earning of profit." The socials objectives of business are

Supplying desired goods at reasonable prices

 Fair Remuneration to employees

Employment Generation

Fair return to investor

 Social welfare

Economic Objectives Social Objectives

1. EO are concerned with economic health of the enterprise.

1. Social Objective is concerned with needs and welfare of the society

2. They serve the economic motives of the stakeholders.

2. They serve the interest of the society.

3. They are mostly enterprise oriented 3. They are social oriented.

4. Important both in long and short term.

4. Perspective of S.O. Is mostly long term.

5. Achievement of EO is necessary for the survival of the enterprise.

5. S.O. Justifies E.O.

6. E.O. are tangible. 6. S.O. are intangible.

7. E. O are clear and definite. 7. S.O. May have ambiguity.

Overview of Business Environment

MACRO ENVIRONMENT

ECONOMIC Environment

MICRO ENVIRONMENT

BUSINESS

Internal Environment

Values, Mission & Objectives. Human

Resources,Co. Image & Brand Equity

TECHNOLOGICAL FACTORS

MARKETING INTERMEDIARIES

DEMOGRAPHIC FACTORS

SOCIAL CULTURAL FACTORS

Non - Economic Environment

TYPES OF ENVIRONMENT

Business decisions are influenced by two sets of factorsInternal factors (The Internal Environment External Factors( The External Environment)

BUSINESS DECISION

INTERNAL FACTORS

EXTERNAL FACTORS

Types of Business Environment

External Business environment is a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business, and that can potentially have both a positive and a negative impact on the business.

Internal Business Environment is the set of elements or forces which affects a organization's or firm’s behavior. Examples are like personnel, finance, marketing, production, operational research and so on.

INTERNAL ENVIRONMENT

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.

2) Vision, 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

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.

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 and Brand Equity

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.

OTHER FACTORS

1. Physical Assets and Facilities

2. R&D and Technological Capabilities

3. Marketing Resources

4. Financial Factors

INTERNAL ENVIRONMENT

a) Micro Environment - Consists of factors in the company’s immediate environment, that affects the performance of the company. Micro environment is the environment that an organization can influence. It may not be able to correct all flaws in the microenvironment, but it has a much better control over the macro environment.

b) Macro Environment - Consists of larger societal forces that affect all the actors in company’s micro environment-namely

the demographic,

economic,

natural,

technological,

political and

cultural forces

EXTERNAL ENVIRONMENT

MICRO ENVIRONMENT Also known as task environment and operating environment.

Microenvironment is an internal part of a company. These factors can be controlled by the company. Micro environmental factors have much more direct impact on a business environment.

The micro forces need not necessarily affect all the firms in a particular industry in the same way.

Some of the micro factors are particular to a firm

Include

The suppliers

Marketing intermediaries

Competitors

Customers

Publics

suppliers Suppliers provide products and services needed to

add value to own product and services. These services must be provided on time and should

meet ones specifications of quality. If requirements are not met then the production as well as the quality suffers.

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.

The ‘TOYOTA’ Case

During 2009 – 2011 , Toyota had to recall nearly 10 million vehicles all around Europe as the accelerators were not working properly.

It was because the supplier had supplied faulty mechanical accelerators.

Due to the faulty accelerators there were many accidents out of which nearly 37 were fatal and ended in death.

Out of 10 million cars nearly 7 million were Toyota Camry and Corolla.

Toyota repaired all these cars and sent them back to their owners , but they lost the trust of the customers.

marketing intermediaries Firms that aid the company in promoting, selling and distributing its goods to final

buyers. It includes

the middlemen and merchants 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.

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.

The company must study its customer markets closely since each market has its own special characteristics.

The least controllable of all.

No single competitive strategy is best for all companies.

Companies must gain a strategic advantage by positioning their products and services against their competitors in the minds of their customers. It is all about positioning.  Companies have to differentiate itself from your competitors.

If a company provide better products for a lower cost -- and possibly faster -- than its competition, then that comapny can compete with them in ways they may not be able to match.

E.g. Toyota cars in year 2002 had issues with its clutch system. They recalled the faulty cars and resolved the issue. It was expected because of this the market share will fall for Toyota but nothing happened. Why??? Because their previous experience with Toyota products or services means they're more likely to opt for Toyota after the problem is resolved.

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

publics Any group that has an actual or potential interest in or impact on an

organization’s ability to achieve its interests. Publics are small groups of people who follow one or more particular issue very closely. They are well informed about the issue(s) and also have a very strong opinion on it/them.

In simple terms, a Public is any group of people that may have an real or potential interest in or an impact on your business's ability to achieve its objectives.

Why should you care about Publics?  It's simple.  Publics can help, or hinder your ability to get your message out to your customers, and collect value from them.

E.g. Media publics, citizens action publics, local publics

Media attack on any company can influence the government decisions affecting the company.

Publics are not always threat to the business. Fruitful cooperation between a company and the local publics may be established for the mutual benefit.

Macro Environment are major external and uncontrollable factors that influence an organization's decision making, and affect its performance and strategies.

These factors include :- Sociological Factors Legal Factors Economical Factors Technological Factors Political Factors Natural Factors Global Factors

MACRO ENVIRONMENT

SOCIO-CULTURAL ENVIRONMENT

A set of customs, beliefs, behaviour and practices that exists within a population.

Companies often include an examination of socio-cultural environment before

entering their target markets. The biggest challenge to firms is the society's

changing demands. Sometimes a firm faces language problems like ford faced

when they introduced their truck brand named ‘fiera’ which means ugly old woman

in Spanish. Factors which affect socio-cultural environment

1.Demographic factors2.Attitude of people3.Social responsibilities4.Religion5.Taste & Preference6.Education7.Family8..Income & Lifestyle

McDonalds made segment according to the demographic in Indian

societies. McDonalds made their food according to religions in India. It

believed in Total Quality Management. They offer food at affordable and

convenience rates which gives direct benefit to them.

Eg: nestle brews a very large variety of instant coffee to satisfy different

national tastes.

E.g.: Vicks Vaporub, the popular pain balm is used as mosquito repellent

in some tropical countries

ColourBlue: feminine and warm in Holland ; but masculine and cold in

SwedenGreen: favourite in Muslim world; but represents illness in MalaysiaRed: popular in communist countries; but represents disaster in AfricaWhite: death and mourning in China and Korea; but it expresses

happiness in some countries. Also it is the colour of bridal dress.

Examples...

Legal Environment has a permanent and lasting impact in shaping business.

Labour law act, Industrial dispute act, Minimum wages act, Law of contract,

Import & Export control act and tax law act are few legal factors.

Legal factors can limit or change how a business operates. For example :

1.A company may have to hire additional supervisory staff or purchase safety

equipment after a new health and safety law is passed.

2.Child labor laws often limit the hours a minor can work and require set break

periods. If an organization employs several minors, it may have to hire additional

help to cover the hours when the minors cannot legally work.

LEGAL ENVIRONMENT

Economic environment conditions such as business cycle, unemployment, Inflation, monitory policies, Industrial policies, trade policies, disposal income etc also affects the business environment. Major factors affecting economic environment are :

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 policies - 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. An increase in interest rates would mean increase in borrowing costs for both consumers and firms. Therefore, investments would be curtailed or postponed resulting in lower growth rates for the entire economy

ECONOMIC 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. Demand for LPG stoves depend on rate of growth of gas connections.

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.

TECHNOLOGICAL ENVIRONMENT

Political environment gives shape to business. Political stability, Government administration, Philosophy of the political parties, taxation policy are some of political factor which affects the business environment.

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.

POLITICAL ENVIRONMENT

NATURAL & ECOLOGICAL FACTORS - Use of modern technology sometimes involves huge social cost in term of deterioration of environmental pollution and ecological balance. So business environment should also consider about natural resources, weather & climatic conditions, health hazards etc.

Geological and ecological factors, such as 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.

NATURAL 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. E.g. Oil price hikes increased the cost of production and the prices of certain products such as fertilizers , synthetic fibres. So usually, the demand for natural fibres and manures increased.

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

INTERNATIONAL/ GLOBAL ENVIRONMENT

TYPES

Environmental Analysis

“The process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic and social settings to determine opportunities and threats to their firms”.

“Environmental diagnosis consists of managerial decisions made by analysing the significance of data (opportunities and threats) of the environmental analysis”.

The process of environmental analysis may be divided into the following four stages:1

1. Scanning the environment to detect warning signals.

2. Monitoring specific environmental trends.

3. Forecasting the direction of future environmental changes.

4. Assessing current and future environmental changes for their organizational implications.

Techniques for Environmental Analysis

Methods of gathering information:

1) Verbal & Written Information: verbal information includes, information obtained by direct talk with

people, by attending seminars, meetings, etc.. Written or documentary information includes both published and

unpublished materials

2) Search and Scanning: this involves research for obtaining the required information

3) Spying: Even though it is not considered as ethical, spying to get information about the competitor is not uncommon.

SWOT analysis

Strengths: attributes of the person or company that are helpful to achieving the objective.

Weaknesses: attributes of the person or company that are harmful to achieving the objective

Opportunities: external conditions that are helpful to achieving the objective

Threats: external conditions which could do damage to the objective

Strengths

What does your organization do well?What unique resources do you have?What do others see as your strengths?

Weaknesses

What could you improve?Where do you have fewer resources than other organizations?What do others see as your weaknesses?

Opportunities

What good opportunities are available to you? What trends would you take advantage of?How can you turn your strengths into opportunities?

Threats

What trends could affect you negatively?What are competing organisations doing?How would a weakness be potential threat?

Assignment

Do your own Swot Analysis

Submission date : 3rd August

Cover Page with necessary details and SWOT analysis in one page