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BUSINESS ENVIRONMENT UNIT-1

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BUSINESS ENVIRONMENT UNIT-1

  1. 1. BUSINESS ENVIRONMENT
  2. 2. All living creatures including human beings live within an environment. Apart from the natural environment, environment of humans include family, friends, peers and neighbours. It also includes man-made structures such as buildings, furniture, roads and other physical infrastructure. The individuals do not live in a vacuum. They continuously interact with their environment to live their lives. Just like human beings, business also does not function in an isolated vacuum. Businesses function within a whole gambit of relevant environment and have to negotiate their way through it. The extent to which the business thrives depends on the manner in which it interacts with its environment. A business which continually remains passive to the relevant changes in the environment is destined to gradually fade-away in oblivion. To be successful business has to not only recognize different elements of the environment but also respect, adapt to or have to manage and influence them. The business must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell extreme threats or open up new opportunities for the firm. A successful business has to identify, appraise, and respond to the various opportunities and threats in its environment.
  3. 3.  The term business environment consists of two words i.e.  Here, “Business is an activity for acquiring wealth through buying or selling goods” Or  “Business refers to the exchange of goods and services for profit’’  And environment means all the factors which are surrounding except jeans of human being. So, Business environment refers to “All the factors (both internal and external) are influencing the business operations/activities’’. Business Environment+
  4. 4. “Business Environment represents a set of conditions, circumstances and influences that and affects the functioning of the organization”. - Dunham “Business Environment is the climatic or set of conditions economic, social, political or institutional in which business operation is conducted”.
  5. 5. •Business Environment is a dynamic nature •Business Environment differs because of country to country and even region to region. •Media of social change •It is an uncertainty concept •It includes both internal and External factors •It is an inter dependence concept •It is a changing environment.
  6. 6. 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 To keep oneself dynamic
  7. 7. Business environment is so powerful that it can make development. It can create employment opportunities and can pave a way for the rich society. In the absence of suitable environment, unemployment, poverty, economic destruction etc. are to be faced by organization. 1. Determining Opportunities and Threats: 2. Identifying Firm’s Strength and Weakness:. 3. Giving Direction for Growth: 4. Continuous Learning 5. Image Building: 6. Meeting Competition: 7. Improving performance:
  8. 8. Components/Factors Affecting Business Environment Internal Factors Macro Environment External Factors Financial Resources Physical & Human Resources Objectives of business R&D Company Policies Vision and mission Suppliers Customers Market Intermediaries Competitors Public Micro Environment Demographic Legal Political Technological Economic Government Cultural
  9. 9. 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
  10. 10. Financial Community
  11. 11. Micro environment is the environment that an organization can influence. It may not be able to Correct all flaws in the microenvironment, but it as a much better control over the microenvironment. (1) Suppliers: – They are the persons who supply raw material and required components to the company. Large companies rely on hundreds of suppliers to maintain their production. Suppliers with their own bargaining power affect the cost structure of the industry. They constitute a major force, which shapes competition in the industry. Also organizations have to take a major decision on “outsourcing” or “in-house” production depending on this supplier environment. (2) Customers/Consumers: - Customers are regarded as the king of the market. Success of every business depends upon the level of their customer‘s satisfaction. The organizations cannot survive without customers. They will cease to exist. Customers may or may not be a consumer. Consumer is the one who ultimately consumes or uses the product or service. A father may buy a product as a customer for his daughter who will be a consumer. A consumer occupies the central position in the marketing environment. The marketer has to closely monitor and analyze changes in consumer tastes and preferences and their buying habits. Types of Customers: •Wholesalers (ii) Retailers (iii) Industries (iv) Government and Other Institutions (v) Foreigners
  12. 12. 5) Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local public. They may be the users or non-users of the product. 3) Market Intermediaries: - They work as a link between business and final consumers. Intermediaries exert a considerable influence on the business organizations. They can also be considered as the major determining force in the business. In many cases the consumers are not aware of the manufacturer of the products they buy. They buy product from the local retailers or big departmental stores such as Big bazaars, Subhiksha and Wall Mart, Best Price that are increasingly becoming popular in some big cities. Types:- (i) Middleman (ii) Marketing Agencies (iii) Financial Intermediaries (iv) Physical Intermediaries 4) Competitors: - Competition shapes business. A study of the competitive scenario is essential for the marketer, particularly threats from competition. Competition may be direct or indirect. Direct competition is between organizations, which are in same business activity. At the same time competition can also be indirect. For example, competition between a holiday resort and car manufacturing company for available discretionary income of affluent customers is indirect competition. Every movement of the competitors affects the business. Business has to adjust itself according to the strategies of the Competitors.
  13. 13. BUSINESS Macro Environment are major external and uncontrollable factors that influence an organization's decision making, and affect its performance and strategies.
  14. 14. Economic environment: The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are: (a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organizations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth. (b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: •Industrial policy •Fiscal policy •Monetary policy •Foreign investment policy •Export –Import policy (EXIM policy) Based on this only organization change /prepare their objectives and goals etc. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, political expediency and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein. (c) Economic System: The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
  15. 15. Political environment: This includes political system, government policies and attitudes towards the business community and unionism all these have a bearing on the strategies adapted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the political party also influences the business organization and its operations. You may be aware that Coca-Cola, a cold drink widely used even now, had to wind up operations in India in late seventies. Again the trade union activities also influence the operation of business enterprises. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. However, with the competitive business environment, trade unions are now showing great maturity and started contributing positively to the success of the business organization and its operations through workers participation in management. It compares political stability and policies of the govt. ideology of parties and personal interest on politicians
  16. 16. Social environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly. If any change any one of these, organization changes their products/production.
  17. 17. Technical environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. For example, in USA and many other countries electrical appliances are designed for 110 volts. But when these are made for India, they have to be of 220 volts. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organizations. Now a day’s in fact, no firm can afford to persist with the outdated technologies.
  18. 18. Legal environment: This refers to set of laws, regulations, which influence the business organizations and their operations. Every business organization has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: •Companies Act, 1956 •Foreign Exchange Management Act, 1999 •The Factories Act, 1948 •Industrial Disputes Act, 1972 •Payment of Gratuity Act, 1972 •Industries (Development and Regulation) Act, 1951 •Prevention of Food Adulteration Act, 1954 •Essential Commodities Act, 2002 •The Standards of Weights and Measures Act, 1956 •Monopolies and Restrictive Trade Practices Act, 1969 •Trade Marks Act, 1999 •Bureau of Indian Standards Act, 1986 •Consumer Protection Act, 1986 •Environment Protection Act •Competition Act, 2002 Besides, the above legislations, the following are also form part of the legal environment of business.
  19. 19. Demographic Environment This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, and then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps.
  20. 20. Natural environment: This environment is the gift of nature. This environment consists of land, water, air, climate, minerals; forest vegetation etc., every aspect of business depends upon natural environment. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector.

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