BUSINESS ENVIRONMENTIntroduction to Business EnvironmentFactors affecting EnvironmentRecent political, financial and economic environmentBusiness Environment and strategic management

Business doesnt function in vaccum.Organisation can grow and survive when it adapts to changing environment.Rapid changes are involved due to coming up of new ideas, new technology, political changes and economic changes.

Environment literally means the surroundings, external objects, influences,or circumstances under which someone or something exists.Business environment is aggregate of all the functions, events that affects the business.Surroundings of business enterprise which have influence on the functioning of business.

Internal environmentREFERS TO INTERNAL FACTORS WITHIN THE ORGANISATIONINCLUDES 5 MS (men, machine, material, management, money)ALL FACTORS ARE CONTROLLABLE IN NATURE

Components of Internal Environment

External EnvironmentSurroundings of business enterprise which have influence on the functioning of the business.Business Environment may be defined as a set of external factors such as economic factors, socio-cultural factors, government and legal factors, demographic factors which are uncontrollable in nature and which affect the business decisions of a firm or industry.

External EnvironmentExternal aspects of surroundings of business enterpriseExternal Factors are Uncontrollable in natureSuccess of business lies in their awareness and adaptability

Types of External EnvironmentTwo types:-Micro Environment.Macro Environment.

Micro EnvironmentAlso known as Operating Environment / Task environment of business.It consists of companys immediate environment that affects the performance of the company. These includes customers, suppliers, market intermediaries, competitors and public. Definition by Philip Kotler

1. SuppliersSuppliers are persons who supply raw materials and components to business.If supplier is reliable, business will run smoothly & it will have to stock less which will decrease its inventory cost.Business must depend upon multiple suppliers which would reduce its risk of non-supply by one supplier on time.Supply chain Mangement is critical to efficiency of a firm.

2. CustomersCentral point of any business.Customers are of different types such as retail customers, industrial customers, govt. institutions.Success of business depends upon identifying customers needs, likings and enhancing customer satisfaction.Business houses should conduct consumer research and design the product as per the needs of consumers.In choosing customers segments a company should consider such factors as the relative depenability,stability of demand, growth prospects and the extent of competition.Example: tyre company

3.Market IntermediariesLink b/w company and final consumer.Help the company to promote, sell and distribute the product to final consumers.Includes :-Middlemen like wholesalers, retailers.Marketing Agencies- like advertising agencies, media firms, market research firms.Financial Intermediaries- like banks, insurance companies.Physical Intermediaries- like warehouses, transport agencies.

4. CompetitorsBusiness has to adjust its various activities according to actions and reactions of competitors.Business has to analyze the strategies of competitors and make counter strategies.Business need to identify the weaknesses of its competitors and use such weaknesses to strengthen its own business.Competition:generic,product and brand

5. PublicsIt is any group which has actual or potential interest in the business.It includes:-Media publics- newspapers, magazines which publishes remarks about the company.Local publics- people living in the area where business is set-up.

Macro EnvironmentGeneral environment/remote environment of the business.Factors which affect business in general.Macro forces are uncontrollable in nature.Growth and survival of the business depend upon adaptability to macro economic factors.

Definition of Macro EnvironmentMacro environment includes forces that create opportunities and pose threat to business units. It includes economic, demographic, natural, technological, political and cultural environments. By Philip Kotler

1. Economic EnvironmentIt includes the economic factors which have impact on the working of the business.Complex and Dynamic in nature.This environment changes with changes in govt. policies and political situations.It includes 2 elementsEconomic conditions.Economic policies.Economic system.

Economic conditionsIncludes income level, distribution of income, demand and supply trends , trade cycles and industrial growth.For example - Improvement in economic conditions will improve quality of life of the people and increase the purchasing power.For example - If economy is in boom, it positively affects demand and market share.

Economic policiesEconomic policies are framed by the govt.These policies establish the relationship b/w business and govt.Various economic policies includes- Monetary policy, Fiscal policy, Industrial policy, Export-Import policy.These policies may grant tax holidays, provide subsidies, custom duty or increase the same for business houses.

Economic systemEconomic system of the country may be-Capitalism dominated by private sector.Socialism the govt. plays important role in economic development of such economies.Mixed- both public and private sector co-exist.

2. Political EnvironmentIt includes the following components:-Political stability in the country.Political Ideology of the country.Welfare activities of the govt.Relation of the govt. with other countries.Centre State Relationship.

Recent Political Environment of India

3. Socio-cultural EnvironmentIt includes social and cultural factors such as:-Family system.Religion.Education.Marriage.Habits and preferences.Urbanization.Customs and traditions.Social responsibility of business.

4. Technological EnvironmentTechnology is dynamic.Fast changes in technology render plants and products obsolete quickly.Success of business depends upon innovation and research.Their should be rapid technology upgradation on the part of businesses.

5. Demographic Environment It is the study of features of population Important demographic factors are:-Population size and growth rateAge compositionGender compositionIncome-levelEducation levelFamily sizeUrban Rural population

6. International EnvironmentThis type of environment is important for the industries depending upon imports and exports.Factors of International Environment are:- GlobalizationLiberalizationGlobal Financial CrisisInternational Terrorism

7. Natural EnvironmentIt includes geographical and ecological factors such as:-Natural resourcesWeather and climatic conditionsPort facilitiesTopographical factors such as soil, sea, rivers, rainfallEnvironmental pollutionNatural calamities

SIGNIFICANCE / NEED OF STUDY OF BUSINESS ENVIRONMENT

To frame policies- business makes its policies keeping in view the demands of changing environment.To ensure optimum utilization of resources- without thorough understanding of internal and external environment , financial resources, human resources and physical resources cannot be utilized in an optimum manner.To analyze Competitors Strategies and Formulate counter measures- by analysing business environment, we can come to know about the competitors strategies and can form counter strategies to tackle them.

4. To keep business dynamic and innovative- Awareness of environmental changes makes the business managers more alert and dynamic . They can expand the business as and when favorable changes are taking place in the environment; and if any unfavorable changes are taking place, they can prepare themselves for facing these unfavorable changes with well planned strategies.

5. To provide input for decision making-Decision making means to select an alternative among the various alternatives available and by analyzing the various alternatives , the best alternative is selected. Study of business environment and its components provide such information to the decision-maker.

6. To Find out the strengths of the business-The strength of the business refers to the capacity by which an organization can gain advantage over its competitors.Environmental Analysis helps the business organization to find out its strengths.After finding out the strengths , the business units can make policies and strategies to expand the business and take advantage over competitors.

7. To find out the weaknesses of business-Weaknesses refers to limitations of the firm.It results in significant disadvantages in relation to the competitors.Environmental Analysis helps to overcome such weaknesses and the business units can make effective plans to overcome such weaknesses.

8. To find out opportunities available to business-Availability of an opportunity is the favorable condition for the business.Environmental Analysis helps us to know such opportunities , so that we can formulate timely action plan to take full advantage of such opportunities.

9. To find out Threats posed to business: -Threat is unfavorable situation in the business.It creates risk for the organization.Risk can be the technological changes, political changes, economic changes etc.After analyzing such risks with the help of environmental analysis, the business units can make effective plans to manage such risks.

10. To understand Market Conditions-The business has to sell the products in the market.Various components of market like consumer, competitor, supplier, change in demand and supply of products etc. affects the business.For this purpose study of business environment is done.

Characteristics of Business Environment

1. Business Environment is complex-Environment is combination of many factors like political, legal, social, technological etc. these factors affect the business in many ways.2. Business Environment is Dynamic-The business environment is mixture of many factors and there are changes in them. These changes in factors of environment makes the business dynamic.

3. Business Environment affects different firms Differently- It is not necessary that any particular change in the environment should affect all the business in similar manner. One business may welcome the change in the environment , while some other business may have adverse effect on change.

4. Business Environment has both Long-Term and Short-Term Impact-Every change in environment has both long term and short term impact on business. The changes environment affects the profitability, productivity and development of business both in short term and long term.

5. Unlimited Effect of External Factors-External factors of business environment are uncontrollable. These factors have very deep effect on business. Sometimes the effect of these factors is so deep that it may take the business to closure.For Example- decision of the govt. to ban whisky will compel whisky selling shops to wind their business.

Business Environment and strategic Management

Scanning the EnvironmentSWOT Analysis

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