Class Notes on Business Environment

Business:
Such activities include exchange of goods and services on a regular
basis and carry an element of risk and uncertainty. Manufacturing,
trading, mining, banking, transport, insurance etc are the different
types of business.
Business Environment:
Business Environment is the sum of several external and internal
forces that affect the functioning of business. It includes factors
outside the firm hich can lead to opportunities for or threats to the
firm.
!lthough there are many factors, the most important of the sectors
are socioeconomic, technological, supplier, competitors, and
government.
"ompetitive Environment:
"ompetitive environment refers to a collection of various firms ith
same, similar or substitute products#services#customers# resources or
any other common area.
$emographic Environment:
%he term demographics denotes characteristics such as age, income,
education, asset onership, home onership, employment status,
etc, of population in a area, district, country or in orld.
Economic Environment:
%he economic environment refers to the general economic situation
in the region and the factors like conditions in resource markets
&money market, manpoer market, ra material components,
services, supply markets and so on' hich influence the supply of
inputs to the enterprise, their costs, (uality, availability and reliability
of supplies.
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Environmental !nalysis:
Environmental !nalysis refers to understanding the external
environment, in terms of the opportunities and threats, and the
internal environment, in terms of the strengths and eaknesses, to
ensure survival, stability, groth and profitability of any organi)ation.
! systematic approach to understanding the environment is the
strength#eaknesses#opportunity# %hreats &S*+%' analysis.
Environmental Scanning:
Environmental scanning or Environmental Monitoring is the process
of gathering information regarding company,s environment, analy)ing
it and forecasting the impact of all predictable environmental
changes.
It is very important because, success of a company depends largely
on ho a company can synchroni)e its strategies ith its
environmental changes.
Ethnic Mix:
It refers to the social value system of a population.
-ive -orces Model:
.orter,s five forces model of competitive analysis is poerful and
popular tool for assessing the main competitive forces in any industry
and their strength and importance to an organi)ation.
%his model holds that the state of competition in an industry is the
sum of competitive pressures operating in five areas of the overall
market i.e. rivalry among current players, threat of ne entrants,
bargaining poer of customers, bargaining poer of suppliers,
threats from substitutes.
/lobal Environment:
/lobal Environment refers to the environment in other countries all
over the orld. %oday, economies are open hich means they are
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interacting ith economies of other countries. 0ence, globali)ation
has become a very important business strategy.
/lobali)ation refers to the process of spreading out of one country to
other parts of the orld by removing political, geographical and other
barriers among countries e.g. companies like 1estle, "adbury etc
have several manufacturing locations and markets around the orld.
Macro2 environment:
It refers to all the factors hich are general for all organi)ations,
provide opportunity or pose threats to them and are relatively
uncontrollable.
It includes $emographic, Economic, and .olitical23egal cum
/overnment environment, Socio2"ultural environment,
%echnological, "ompetitive and /lobal environment.
Micro2 environment:
It refers to all the factors hich are specific to an organi)ation and
impart strengths or cause eaknesses of a strategic nature. It
includes market, organi)ation, intermediaries, suppliers,
consumer#customer etc.
.olitical2legal Environment:
.olitical23egal Environment is a collection of factors such as the
general state of politics, the degree of politicali)ation of business and
economic issues, the level of political morality, the la and order
situation, political stability, the political ideology and practices of the
ruling party, the purposefulness and efficiency of governmental
agencies, the extent and nature of governmental intervention in the
economy and the industry, /overnment policies &fiscal, monetary,
industrial, labor and export2 import policies', specific legal enactments
and frameork in hich the enterprise has to function and the degree
of effectiveness ith hich they are implemented, public attitude
toards business in general and the enterprise in particular and so
on.
Socio2cultural Environment:
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Socio2"ultural environment is a collection of social factors affecting a
business and includes social traditions, values and beliefs, level and
standards of literacy and education, the ethical standards and state of
society, the extent of social stratification, conflict and cohesiveness
and so forth.
Socio2cultural environment consist of factors related to human
relationships and the impact of social attitudes and cultural values
hich has bearing on the business of the organi)ation.
%he beliefs, values and norms of a society determine ho individuals
and organi)ations should be interrelated.
%echnological Environment:
It is a collection of technological factors affecting a business and
includes scientific advancements and changes of manufacturing,
banking, communication, entertainment and all other aspects of
changing people,s life.
21 Short Questions with Answers on Business
Environment:
4. *hat is environmental analysis5
Environmental analysis is defined as 6the process by hich
strategists monitor the economic, governmental#legal,
market#competitive, supplier#technological, geographic, and social
settings to determine opportunities and threats to their firms.
7. *hat is environmental diagnosis5
6Environmental diagnosis consists of managerial decisions made by
analy)ing the significance of the data &opportunities and threats' of
the environmental analysis.8
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9. *hat do you mean by business environment and economic
environment respectively5
Business environment refers to the totality of all the factors hich are
external and out of control of an individual, business enterprise and
their management. %he most important factors are socio2economic,
technological, suppliers, competitors and government.
%he economic conditions such as, the nature of the economy, the
stage of development of the economy, economic resources, the level
of income, the distribution of income and assets etc., all mean
economic environment.
:. *hy are internal factors of a business enterprise regarded as
controllable factors5
%he 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, organi)ation
and functional means, such as marketing mix, to suit the
environment.
<. *hat kind of external factors influence the process of business
enterprises5
%he external factors are by and large, beyond the control of a
company. %he external or environmental factors such as the
economic factors, socio2cultural factors, government and legal
factors, demographic factors, geo2physical factors, etc., influence the
process of business enterprises.
=. *hat are the important external factors that constitute the
economic environment of a business5
Economic conditions, economic policies and the economic system
are the important external factors that constitute the economic
environment of a business.
>. *hat do you mean by micro environment5
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%he micro environment consists of the factors in the company?s
immediate environment that affects the performance of the company.
%hese include the suppliers, marketing intermediaries, competitors,
customers and the public.
@. Mention some important determinants of business strategies.
%he economic conditions of a countryAfor example, the nature of the
economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and assets,
etcAare among the very important determinants of business
strategies
B. *hat do you understand by free market economy5
%he free market economy is not planned, controlled or regulated by
the government. %he government satisfies community or collective
ants, but does not compete ith private firms; nor does it tell the
people here to ork or hat to produce.
%he completely free market economy, hoever, is an abstract system
rather than a real one today, even the so2called market economies
like the Cnited States, Dapan, !ustralia, "anada and member
countries of the EE" are subEect to a number of government
regulations.
4F. *hat factors sho that 6the freedom of private enterprises is
greatest in the free market economy58
%he freedom of private enterprises is the greatest in the free market
economy, hich is demonstrated by the folloing facts:
&i' %he factors of production &labor, land, capital' are privately oned,
and production occurs at the initiative of the private enterprise.
&ii' Income is received in monetary form by the sale of services of the
factors of production and from the profits of the private enterprise.
&iii' Members of the free market economy have freedom of choice in
so far as consumption, occupation, savings and investments are
concerned.
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44. Mention the socio2cultural fabric as an important environmental
factor that should be analy)ed hile formulating business strategies.
%he socio2cultural fabric is an important environmental factor that
should be analy)ed hile formulating business strategies. %he cost of
ignoring the customs, traditions, taboos, tastes and preferences, etc.,
of a people could be very high.
%he buying and consumption habits of the people their language,
beliefs and values, customs and traditions, tastes and preferences,
education are all factors that affect business.
47. *hat demographic factors are relevant to business5
$emographic factors like the si)e, groth rate, age composition, sex
composition, etc. of the population, family si)e, economic stratification
of the population, educational, levels, language, caste, religion, etc
are the factors that are relevant to business.
49. *hat do you mean by demarketing5
$emarketing refers to the process of cutting consumer demand for a
product back to level that can be supplied by the firm. Some oil
companiesAthe .$B of Bangladesh, for exampleAhave publici)ed
tips on ho to cut consumption of electricity.
*hen the fertili)er price shot up folloing the electricity crisis, some
fertili)er companies appealed to the farmers to use fertili)ers only for
important and remunerative crops. %he importance of natural manure
like compost as a substitute for chemical fertili)ers as also
emphasi)ed.
4:. Mention some of the important environmental forces hich drive
companies toards adopting the marketing concept.
%here are certain environmental forces hich drive companies
toards adopting the marketing concept. %hese forces tend to make
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the survival of the companies otherise difficult. Important among
these forces are:
&i' groth of consumerisms and environmentalism;
&ii' demand for social Eustice;
&iii' government regulations; and
&iv' changing competitive environment.
4<. *hat is meant by the capitalist system5
%he capitalist system is one characteri)ed by the private onership of
the means of production, individual decision making, and the use of
the market mechanism to carry out the decision of individual
participants and facilitate the flo of goods and services in markets.
4=. *hat are the principal characteristics of a 6pure8 capitalist
system5
%he principal characteristics of a 6pure8 capitalist system are:
&i' %he factors of productionAland, labor and capitalAare privately
oned, and production occurs at private initiative.
&ii' -ree enterprise is merely an extension of the concept of property
rights.
&iii' "onsumer?s sovereignty here consumers have complete
freedom of choice of consumption.
&iv' %he individual is free to choose any occupation he is (ualified for.
&v' %he freedom to save is implied in the freedom of consumption, for
savings depend on income and consumption.
&vi'%he market mechanism is the key factor that regulates the
capitalist economy.
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&vii' "ompetition among sellers and buyers is an essential feature of
an ideal capitalist system
&viii' %he absence of a central plan.
4>. *hat do you mean by socialism5
Socialism is generally understood as an economic system here the
means of production are either oned or controlled by the state and
here the resource allocation, investment pattern, consumption,
income distribution, etc. are directed and regulated by the state.
4@. Mention some of the salient features of a socialist system.
%he salient features of a socialist system are:
&i' %he maEor means of production are either oned by the
/overnment or their use is controlled by the /overnment.
&ii' Existence of a central authority like the central planning agency to
formulate the national plan for development and to direct resource
mobili)ation, allocation and investment to achieve the plan targets.
&iii' %he consumers have to content themselves ith hat the state
thinks is sufficient for them.
&iv' %he freedom of occupation is absent or restricted.
&v' %he age rates and prices are fixed by the /overnment and not
by market forces.
&vi' !n e(uitable distribution of income.
4B. *hat is command economy5
%he command economy is characteri)ed by public onership of the
means of production, collective determination of economic decisions,
and the allocation of resources by commands issued by the planning
elite. %he primary feature of the command economy is the
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centrali)ation of decision2making. %here is no hori)ontal
communication beteen producing and consuming units. !ll
communication is vertical, i.e., beteen the individual economic unit
and the planning agency.
7F. *hat do you mean by consumerism5 /ive to rights of the
consumer.
"onsumerism is the movement seeking to protect and inform
consumers by re(uiring such practices as honest packaging and
advertising, product guarantees and improved safety standards.
Gights of the consumer are :
&a' Gight against exploitation by unfair trade practices.
&b' Gight to protection of health and safety from the goods and
services the consumers buy or are offered free.
74. *hat are the utilities of consumerism5
*ell2organi)ed and dynamic consumerism may be expected to
produce the folloing results:
&i' .roducers and sellers ill not take the consumer for granted.
&ii' "onsumerism ill provide feedback for the business.
&iii' .roducers ill be able to enlist the support of consumers to
minimi)e the imperfections on the distribution front.
&iv' "onsumerism ill make the government more responsive to
consumer interests, prompt it to take necessary statutory measures,
and make the re(uired institutional arrangements to safeguard
consumer rights.
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SMILE
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