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Business Environment consists of all those
factors that have a bearing on the business CA
Francis
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The term business environment of a company isdefined as a pattern of all external influences that
effect its life and development.
The survival of a business firm depends on its
innate strength resources at its command and its
adaptability to the environment and the extent to
which the environment is favorable to
development of the firm
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The survival and success of a firm, thus, dependon two major factors, viz,- the internal factors &
the external factors.
Business Environment relates to External Factors
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A SWOT analysis i.e analysis of strengths andweaknesses of the organisation and opportunitiesand threats in the environment.
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The internal environment has two components:
Strengths and Weaknesses of the organisation.
The internal factors are generally regarded as
controllable factors because the company has
control over these factors: it can alter or modify
such factors as its personnel, physical facilities,
organisational and functional means, such as
marketing mix, to suit the environment.
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The external environment has two components:
Opportunities and Threats to business.
External factors such as economic factors, socio-cultural factors, govt and legal factors,
demographic factors, geo-physical factors etc are
uncontrollable factors.
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Business Environment at 2 levels:
Micro/task/operating environment
Macro/general/remote environment
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Micro Environment:
Suppliers
Customers Competitors
Marketing intermediaries
Financiers
Publics
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Customers
Those people & organizations in the environment who
acquire goods or services from the business are
customers.
As recipients of the business output, customers are
important because they determine the business s
Types of Customers
Industrial Customers
Institutional Customer Foreign Customer Retail Customer
Multiple Customer
Globalization
Customer Segmentation
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Competitors
Other firms in the same industry or type of business that
provide goods & services to the same set of
customers.
In todays environment most competitors are
cooperating to achieve common goals.
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Market Intermediates
Types of Market Intermediates Middlemen
Marketing Agencies
Financial Institution
Physical Intermediates
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PUBLICS
Media Publics
Local Publics
Citizen action publics
NGOs
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Significance of Business Environment:
There is a mutual interdependence between
business and its environment. A business
enterprises is an open system. It continously
interacts with its environment. Business takes
inputs raw materials, capital, labour, energy etc.
from its environment, and transform them intogoods and services and then send them back to
the environment.
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Business and its external environment interact in the
following ways.. Exchange of information
. Exchange of resources.
. Exchange of influence and power.
For incorporating dynamic behaviour of environment
Complete knowledge of internal environment
To understand international events, pressures& impact
Economic policies of the govt.
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Economic policies of the govt.
To face business problems &challenges
Vigilant regarding dangers
Administrative system
Optimum utilization of resources
Market conditions
Scientific & industrial advancement
Development & success of business
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Macro Dimensions of Business Environment:
The main macro dimensions elements of business
environment are as follows:-
Economic environment
Political and regulatory environment
Social and cultural environment
Demographic environment
Technical environment
National environment
Global environment
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Economic Environment: The economic environmentcomprises of the factors and forces concerned with means
of production and distribution of wealth. It refers to Economic system: the countrys economic model (socialist,
capitalist, mixed)
Economic policies: Budgets, 5-Year Plans, industrial laws andpolicies, statutory regulations, various Acts and Legislations,
export-import restrictions, wage and price controls, publicdistribution system, rural economic upliftment programs etc.
Economic growth: Economic performance and growth ofdomestic industry is heavily dependent on the growth of theeconomy as a whole. Boom encourages business activity while
recession retards it. Organisation of capital and money markets
Economic indicators: Interest rates, Currency exchange rates,income level ,price level
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Social Environment: This environment includes
social factors such as attitudes of people ,social
customs and traditions ,education level, size of
population ,trade unions, occupational structure
etc.
Political Environment: Political environment
refers to the country's political system, type of
government, government policies towardsbusiness ,government ,centre state relations
,public opinion, law and order etc.
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Legal/ Regulatory environment:
Legal environment of business includes all the
laws, legal system and judiciary system of the
country. A business has to work within framework
of country's laws and regulations.
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The 3 pillars of the Government are: Legislature: enacts legislation i.e. creates laws by means of statutes and
Acts
Executive: entrusted with implementing these statutes
Judiciary: adjudicates on issues arising from non-compliance of thesestatutes
All business activity are legally and morally bound to conform to it.
The political and legal environment exerts its influence on business
through: Legal obligations which determine business decisions and actions
Political and ideological stand of the nation have a bearing on thebusiness
Internal strife by aggrieved sections of society that hamper economicactivity and development
Political philosophies that stabilize or disrupt the economic progress Reaction times of the 3 pillars of democracy in responding to the issues
that cripple progress
Foreign policy initiatives that strengthen the nations economy
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Socio-Cultural Environment
Social and Cultural environment refers to theinfluence exercised by certain social factors which
are beyond the companys gate. Such factors
include, among others, attitude of people to work,attitude to wealth, family, marriage, religion,
education, ethics and social responsibility of
business.
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Technology:
Includes scientific and technological
advancements in a specific industry as well as in
society at large. E.g. Computer industry, etc.
Technological advances can change the rule of the
game; thus every business must be ready to
respond.
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Natural Environment
Climatic & weather condition.
Availability of Natural resources.
Topographical factors: Physical features of place.
Pollution Control
Demographic Environment
Age Composition
Sex Composition
Education Level
Family size & structure
Urban-rural population
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International Business
When business activities are performed on aninternational level, these can be termed as
international business.
Basic functions, processes and techniques ofinternational business are essentially the same as
those involved in domestic business.
What is different is the environment within whichthese functions are performed and processes are
carried out.
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International Business environments are
unfamiliar and different from the domesticenvironment
These variations may need adaptation for
business success.
International Business Environment
In the context of a business firm, environment
can be defined as various external actors and
forces that surround the firm and influence its
decisions and operations.
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The two major characteristics of the environment as
pointed out by this definition are:
these actors and forces are external to the firm
these are essentially uncontrollable. The firm
can do little to change them