Meaning and types of Enviornment

Meaning of Business Environment

Environment means the surrounding within which someone or something exists..

Business unit is a micro concept, and environment macro concept.

Business and environment are inter-related.

No business can function against the environment.

Business environment refers to the socio-economic surroundings under which business activities are to be conducted.

Such environment is the net result or sum total of various political, economic, social, technological, natural and other factors.

Environmental factors are largely beyond the control of the business enterprise.

Features /Characteristics of business Environment1) INTERNAL AND EXTERNAL FACTORS: Internal factors consists of the organizations policies and plans, its

employees, its technical and infrastructural facilities. They are manageable and controllable.

External factors are consists of economic, legal, social, cultural, and political factors. They cannot be controlled and therefore a business has to adjust itself according to the changes of the factors.

2) SWOT: The internal environment poses strengths and weakness while the

external environment offers opportunities and threats. A business firm has to consolidate the strengths, overcome its

weaknesses, grab the opportunities and minimize its threats in order to be successful in the modern world.

3) DYNAMIC: Business environment is never static. In others words business is

dynamic and ever changing in nature.

4) IT MAY BE FAVOURABLE OR UNFAVOURABLE: A favorable change in business environment may create

opportunities for the business unit, while unfavorable change poses threats to the business unit.

5) REGULATES BUSINESS ACTIVITY: Business environment regulates the functioning of

business activities. Eg. Govt. policies to ban the smoking of cigarettes in public places and railways stations affected the sale of such products.

6) UNPREDICTABLE: Changes in the business environment is very essential to

plan the future course of business activity.7) ADAPTABILITY: Adaptation is the key to the survival of business. the

changing business environment demands a high degree of adjustments and adaptation on the part of business unit.

Meaning of Micro Environment (Business)

Micro-environment implies the factors and forces in the immediate environment which affect the company’s ability to serve the market.

It exists in order to satisfy the society i.e., customers, employees, competitors, government, general public.

Meaning of Macro environment(Environment)Macro environment refers to those factors that

operate outside the company.These are external factors and are

uncontrollable by the enterprise.Macro environment includes various factors like

political, economic, demographic, etc.

Types/components of Macro-Environment

Political environmentEconomic environmentSocial and cultural environmentTechnological environmentRegulatory (legal) environmentDemographic environmentNatural /physical/ecological environmentInternational/global environment

TOTAL MACRO ENVIRONMENT

Political

Economical

Social and cultural

Technological

Regulatory

International

Demographic

External factors influencing business environment (Macro-Environment)1.Political:MeaningPolitical factors influence the business

environment in different ways.For e.g. Legislations are made for restricting

marketing/business activities and to restrict the growth of private monopolies and malpractices.

Major political changes like the formation of new government have a strong impact on the business environment.

Influencing factors include: General election Assurance given by political parties at the

time of election Death of any important political leaderPolitical scandals, corruption charges orWar by powerful countries are some

major political factors which affect the political environment.

Effects of political changes: Effects may be direct or indirect for the business.

Sometimes, the effects are suffocating and even frustrating on the business but need to be accepted.

Changes in parties may lead to changes to government priorities.

2.Economic:Meaning Economic condition, economic policies and

economic system are the factors that constitute the economic environment.

In times of good economic conditions, the environment is favorable.

Favorable economic environment brings rapid growth and expansion of business activities.

Influencing factorsGovernment influences economic environment

through economic planning, monetary and fiscal policies.

However, in times of depression, companies have to manage their activities to survive and to change the activities of business accordingly.

Therefore businessmen have to keep constant watch on the changes taking place in economic environment and adjust the decision-making process accordingly. (minute study)

3.Social and Cultural Factors:MeaningSocial environment is the result of

social forces and factors. society includes different social groups i.e. consumers, investors, local community and employees.

The need and expectations of these groups create social environment for business.

Cultural environment is treated as a part of social environment which includes (festivals, music, dance, celebrations of important days, etc)

Influencing factorDynamic in natureChanges in demand of consumers choice,

fashions, style of celebrating marriages, birthdays, cultural festivals and so on are the main factors affecting business activities.

Culture also plays a major role in consumer demand.

4.Technological:meaningTechnological changes very fast and therefore

businessmen should be ever alert to adapt changed technology in their business .

Customers want the latest technology products.

Companies, must therefore, keep a track of the latest developments to keep up with the competition.

Quality improvement and cost reduction are possible through the use of modern technology.

Influencing factors/forces includes the technique of production, innovations and inventions that affect quality and quantity of production.

R & D plays very important role in influencing business activities. Product modification, introduction of new products can be possible only through R&D.

5.Legal environment:MeaningIt creates a frame work of rules ,regulations

and legal provisions within which the business units have to operate.

There are many laws which affect business directly or indirectly for eg.

• The Indian companies Act, 1956.• Consumer protection Act, 1986• Environment protection Act, 1986

Influencing factorsGovernment policies relating to licensing,

registration, foreign investment and Act related to control of pollution, etc.

Too many laws and regulations.

TOTAL MICRO ENVIRONMENT

CUSTOMERS

COMPETITORS

SUPPLIERS

DISTRIBUTION CHANNELS

SOCIETY

government

media

General public

(Micro- Environment)

1.Customers: Meaning :A business organization exists in order to satisfy its

customers. “Customers is the king” of the present days marketers.

2. Competitors: A business firm has to study its competitors product and

has to constantly design quality of the product so as to stay in the market place.

3.Suppliers: Suppliers supply goods quality raw materials, packaging materials, parts and components on –time. A business firm has to maintain cordial relations with its suppliers.

4. Distribution channel intermediates: Channel intermediaries not only distributes the

goods but also push sale of goods to the customers to increase the turnover.

5. Society: General public consists of shareholders, investor,

employees with whom business firm is required to maintain good relations.

Media-print, broadcast, outdoor etc.Government, both central as well as state govt.

plays important role in framing policies of business firm.

Education environment and business

Educational environment

Meaning : Educational environment is the academic surrounding of situation

with in which the educational, training and manpower development activities are undertaken. It is the educational system which creates human capital which is useful in economic growth, skill formation, improving the quality of life ,expectancy and so on.