Download - Business environment
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Environment means the surroundings, external objects, influences or circumstances under which someone or something exists. The environment of any organisation is the aggregate of all conditions, events & influences that surround & affect it.
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Purchase decision: Automobile Supplier of raw materials Manufacturer Dealer Advertising agency Banker Insurance agent
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Business- economic activity Business firm- economic unit Business decision making- economic in
nature
Business achieve objectives by using resources optimally
Decisions taken in the presence of environmental factors
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Business firm is micro economic unit Business environment furnishes macro
economic context for its operation
Environment in which business operates Includes conditions, events, factors that
influence the working of business
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Classification: Time: past, present & future environment of
business Space: local, regional, national , international
environment of business Forces: forces of market like demand, supply Factors: economic & non-economic
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The classification of relevant environment into components helps the organisation to cope with its complexity, comprehend the different influences operating & relating the environmental changes to its strategic management process.
Business firms: adaptability & adoptability to environment
Managers: capability & copability to deal with environment
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BUSINESS DECISIONSINTERNAL ENVIRONMENT
EXTERNALENVIRONMENT
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Richman & Copen…………
Environment factors or constraints are largely, if not totally, external and beyond the control of individual industrial enterprises & their managements. These are essentially the ‘givers’ within which the firms & their managements must operate in a specific country & they vary often greatly from country to country.
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Business environment for a firm- multi layered structure.Layers:
favourable/ adverse exhibit different characteristics affect adjoining layer over a period of time Closeness of interaction & interrelationship diff
at diff levels
Example: changes in global business environment may effect the domestic growth environment significantly
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INTERNALENVRNMNT
EXTERNAL
RIVAL
FINANCIERS
CUSTOMR
INPUTPRVIDER
DOMESTIC MACRO ECNMC ENVRNMNT
NON ECNMC MACRO ENVRNMNT
SOCIALCULTRL
ECMNCSTBLTY
ECNMCSYSTM
GRWTH&DIST
ECOPOLICY
DEMGRPHC
INTRNTNL ENVRNMT
INTRNTNL ENVRNMT
GOVT
CONTD……
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Change in environment presents opportunity to some & threat to others
Examples: General agreement on trade & services (GATS)
implemented in India on Jan 1, 2005: opportunity for research based pharmaceutical cos like Ranbaxy but threat to smaller companies.
HUL took advantage of new takeover & merger codes: acquired Kissan from UB group, Lakme from Tata, Modern foods from government.
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Regarded as controllable factors: companies have control over them
Internal economy: some internal factors contribute increase in productivity
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Mission & vision of the organisation Management strategy Industrial relations Corporate culture & values Line & staff relations Quality control system Team spirit among employees Work culture Compensation system Career progression of employees
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Conflict b/w different owner groups Conflicts b/w workers & managers Inter departmental conflicts Unhealthy competition & conflict among
employees Office politics Discrimination at work place Absenteeism
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Regarded as uncontrollable factors: by and large beyond the control of company.
External economy: some external factors contribute to the growth of the company.
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Suppliers Customers Competitors Financiers Society
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BUSINESS
POLITICALLEGAL
ECONOMIC
SOCIAL
CULTURAL
TECHNOLOGICAL
GLOBAL
NATURAL
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Economic system
Growth & distribution environment
Macro economic stability (price level, exchange rate, interest rate, money supply, aggregate demand, BOP, employment rate)
Economic policy (monetary policy, fiscal policy, industrial policy, trade policy)
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Political environment Social / cultural environment Demographic environment Technological environment Natural environment Historical environment
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State of world economy International economic cooperation Role of multilateral economic institutions International economic laws, agreements, codes Political condition & system in different countries Cultural factors across countries Growth & spread of MNCs Technology growth & transfer International market structure & competition Barriers to international trade & investment
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(I) POLITICAL ENVIRONMENT
Political stability- changes in the form & structure of government administration
Political organisation- ideology of ruling government; influence of premier groups; conflicting role of public & private sector
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Example: Nehru: transformation of agrarian economy
into industrialised economy
Indira Gandhi: state became active in agriculture sector (subsidised fertilisers, expansion of institutional credit); tightening of state control over industrial finance, foreign investment, trade
Since 1990-91, political environment changed- economy increasingly being liberalised
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Example:
In 1977, Janata govt came to power: Coca cola, IBM had to leave country. All liquor cos had to close operations.
1991 new economic order presented new opportunities for business & also threat to inefficient organizations.
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(II) REGULATORY & LEGAL ENVIRONMENT
Legal policies- formulation & implementation Economic legislations- facilitator and/ or
restrictor Playa a vital role- dictating dos & don’ts of
business Flexibility & adaptability of law- constitutional
amendments Foreign policy- tariffs, custom unions etc
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(III) SOCIO- CULTURAL ENVIRONMENT
SOCIAL ENVIRONMENT Made up of attitude, desires, expectations,
education, beliefs & customs of people Changes gradually To forecast a change is difficult
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CULTURAL ENVIRONMENT
Organisational culture is the customary or traditional ways on thinking & doing things, which are shared to a greater or lesser extent by all the members of the organisation, which new members must learn & at least partially accept in order to be accepted into the service of the firm.
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A firm wanting to market its product in various regions with diversified cultures will have to carefully study the existing consumption pattern & scope for creating demand for new products & will have to adjust their marketing communication to cultural characteristics.
If the society is multi- cultural, then the firm can not meet the demands of different groups with a uniform product. To be successful in a multi cultural society, the firm will have to carefully study the consumption behaviour of different groups.
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Example:
Companies have to change their product portfolio because of cultural differences as McDonald and KFC did when they launched their restaurant chain in India.
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(IV) DEMOGRAPHIC ENVIRONMENT
(a) Size & growth rate of population
Growing population: boon• Increase in productive forces• Bigger market for products
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Growing population: bane Adverse impact on per capita income &
standard of living Adverse impact on savings: unfavourable
impact on capital formation Adverse impact on employment situation Increasing pressure on agriculture
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(b) age structure of population
It determines: Productivity level Demand pattern
Young population: PTC highElderly population: high savings
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(c) urban- rural population
Proportion of urban rural population increasing
Reasons
Pull factors: Better employment opportunities in urban
areas Better income Better education Better health facilities
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Push factors: Low level of agriculture productivity Disguised unemployment Wide disparity between urban & rural levels
of living
In India, urban population increased from 17.3% of total population in 1951 to 27.78% of total population in 2001 (Source: Economic Survey 2003-04)
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Example:
Demographic environment decides the marketing mix for an organisation. A one rupee sachet of shampoo or a five rupee ice-cream cone are some examples.
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(V) TECHNOLOGICAL ENVIRONMENT
Refers to body of skills, knowledge & procedures for making, using & doing useful things
Positive effects of technology: Increased productivity Spread effects Production of new & better goods of
standardised quality with more efficient use of raw materials
Basis for fast growing urban & industrial system
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Negative effects of technology: Displacement of labour Environmental pollution Switching over might be costly
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Example:
FIAT was using old technology but MUL had no option than to go for superior technology.
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(VI) NATURAL ENVIRONMENT Industrial activity not entirely independent of
nature Industrial units using weight losing inputs to
be set up at sources of these inputs Externalities
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(VII) EDUCATIONAL ENVIRONMENT Attitude towards education & acquisition of
knowledge Types of education- formal or informal Literacy level Educational match with skill requirement
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(VII) HISTORICAL ENVIRONMENT
Historical events & ideologies have a strong impact on the current state of business
Example: business environment in a number of newly independent nation states has been determined by the colonial status that these countries had.
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Dynamic Uncertain Element of Risk Opportunities & threats Internal & external factors Economic & non-economic factors
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Facilitates operations of the organisation Forms the basis of long term policies, plans,
strategies of organisation Helps organisation in identifying &
understanding its competitors Helps the firm to expand & grow
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CORPORATE RESPONSE & ADJUSTMENT TO SPECIFIC CHANGES IN BUSINESS ENVIRONMENT
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Competitive environment
Marketing strategy Developing new product Satisfying customers Measures for realisation of economies of
scale & scope
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Technological environment
R & D Foreign technical collaborations Choice of technology Capital labour ratio
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Labour environment
Productivity Employee motivation Employees’ turnover rate Working conditions Compensation
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Legal environment
Procedures & documentation Ethical practices Intellectual property protection Credibility
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Social environment
Social responsibility Welfare expenditure
And so on………….
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Environmental changes:
Liberalisation era forced businessmen to think of core competencies
Reckless diversifications made during pre liberalisation era became liabilities
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Strategic responses:
Restructuring business
Internationally to consolidate strength in brewing & distilling
In India to focus on engineering, services, health care, brewing & distilling
Hiving of non core business like pharmaceuticals
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Consequences:
With the excess baggage being shed, UB group looks slim & vibrant
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Firms that are able to make appropriate adjustment to business environment changes reduce risk & uncertainty & gain competitive edge over others. Failure in making timely adjustment may erode profitability, competitiveness & market share.
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Legal risk: arising from legal challenges or changes in laws
Regulatory risk: arising from regulatory design & its changes
Political risk: arising from political changes
Social risk: originating from social attitudes, perceptions
Natural risk: associated with natural calamities
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Studies interaction, interdependence, interlocking of various environmental factors
Economic environment is both- endogenous & exogenous- it is determined as well as determining
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Non EcoEnvrnmt
Eco. Sys.
Eco. Stru
Fnctng of the Eco
Eco plng
Eco. prgrm
Eco. Policies
Eco.contls & rgultions
Eco.gwth & dvt
Sociological + + + + + + + +
Educational + + + + + + + +
Political + + + + + + + +
Historical + + + + + + + +
EcoEnvrnmt
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NON
PRESENT
ENVRNMT
PRESENT
ECO
ENVRNMT
(1)
PRESENT
NON- ECO
ENVRNMT
(2)
PAST ECONOMIC (1)
+ +
NON ECONOMIC
(2)
+ +
FUTURE ECONOMIC
(3)
+ +
NON ECONOMIC
(4)
+ +
PRESENTENVRNMNT
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Wiliam & Lawrence……..
Environmental analysis & diagnosis give strategists time to anticipate opportunities & to plan to take optional responses to these opportunities. Its also helps strategists to develop an early warning system to prevent threats & to develop strategies which can turn a threat to the firm’s advantage
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Scanning: general surveillance of environmental factors & their interactions
Monitoring: tracking environmental trends, events
Forecasting: developing plausible projections of direction, scope & intensity of environmental change
Assessment: identifying & evaluating how & why current & projected environmental changes will affect strategic management of organisation
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Strategic planning in which managers try to determine best fit b/w organisation & its external environment
Important step towards corporate planning & business policy decisions
Aimed at continuous improvement of the company, its policies & programs.
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INTERNAL SCANNING: acquisition, analysis, use of information from within the organisation that will help the management in determining future course of action of business
EXTERNAL SCANNING: acquisition, analysis, use of information about events & establishing the relationship of business with its external environmental variables
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Corporate managers analyse the Strengths (S), Weakness (W), opportunity (O) & Threat (T) that exist for their organisation in the context of its environment.
O & T are external to the firm. With S the firm can seize the O & captilise on it & because of its W it becomes the victim of T in the environment
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MONITORING
SCANNING FORECASTING
ASSESSMENT
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To provide economic logic & perspective for managerial decision making
Integrating economic theory with practical business situations
Monitoring, scanning, careful analysis & interpretations of business environment
Forecasting, future panning & formulating future business strategy