Business Environment

MODULE -1
BUSINESS ENVIRONMENT
4/10/2013
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Business Environment
Learning objectives:
Environmental scanning-meaning,nature and scope
Economic and non-economic environment
Interaction between internal and external environments
Overview of political, socio-cultural, legal technological
Global environment
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Business
Environment
What is Business?
Business is an activity which involves buying and selling of goods
& services.
Modern business covers a complex field of industry and commerce which
involve activities related to both production and distribution.
These activities on the one hand satisfy societal need and desires and on the
other hand bring profits to business firms.
All the business activities are normally motivated by profits, in case , any of
these activities is carried out by some organization for the purpose other than
profit seeking, it cannot be justifiably considered as business.
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What are the contribution from business?
Economic growth
creates employment opportunities
Provides all kinds of goods and services
which we need for consumption
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NATURE OF MODERN BUSINESS

Large size
Oligopolistic character
Diversification
Global reach of modern business
Technological orientation
Change
Government control
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NATURE OF MODERN BUSINESS.

Business that matters today is large in size.
Indian companies in terms of revenues, profits, assets and
stockholders equity are relatively small as compared to the
companies in developed countries.
Reliance industries
Hindustan Lever
Telco
Larsen and Toubro
Tata Motors
Maruti Udyog
Hero Honda
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Nature of Modern Business

Only Four companies figure in the Fortune list of 2003.
Indian Oil
Bharat Petroleum
Hindustan petroleum
Reliance industries
Most of the fortune 500 companies are located in the

USA Biggest capitalist economy, 189 of the worlds largest
Cos belong to US
Japan - second largest with 104 of the Fortune 500
Europe Western Europe holds 138 of the worlds
largest companies.
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Nature of Modern Business.

Present day business is Oligopolistic in its nature.
Small No. of firms selling a homogeneous /differentiated
product. Interdependence among the sellers.
Any change in its price & sales or in the quality of its
product, or any other variable whose value under is
control is likely to evoke retaliation from other other firms
in the same line of business.
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Nature of modern of business

DIVERSIFICATION:
Today not many corporate confine their activities to production of a
single commodity.
Some business firms prefer related products to their existing
production. This is called concentric diversification.
Ex: Maruti Udyog
Adding new unrelated products or services for existing customers is

known as conglomerate diversification.
Ex: JK Group has interest in textiles, engineering, Computers
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Big business houses usually expand their activity by
establishing new companies which undertake production of
unrelated new products or services. This is conglomerate
diversification.
Ex: TATAs
However, diversification may not always contribute to
growth of a business enterprise.
In the recessionary phase, it is quite risky to aspire for
growth by going for unplanned diversification.
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Nature of modern business

In India some big companies including DCM, Britannia, ITC and Nelco
did not benefit from diversification.
Companies lacking resources and managerial expertise do not foray
into new business.
In some of the developed countries even some of the business giants
have preferred takeover of companies operating in their own lines of
production
Even in the Indian markets some of the business giants have preferred
takeover of companies in their own areas.
Ex: Coco-cola , for example has taken Parle Soft Drinks,

Honda has taken over Kinetic Honda
Whirlpool has taken over Kelvinator Refrigerators.
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Nature of modern business

Technology Orientation:
Modern business is technology oriented. People expect that the quality
of products should improve overtime and the real cost.
All this can be accomplished by the business if It pays attention to
sophistication of technology.
Modern companies regard technological research strategic to their
future, They carry out their R & D activities very close to their
headquarters.
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Change: Today a business firm clearly needs to move faster if the fear of
irrevalance is not to become a reality.
A modern firm must be vigilant all the time and be ready for change.
Improvement in quality, packaging or product design is not sufficient to
retain customers, the firm should promptly introduce new products and
create demand for them.
The business through its innovative moves can always

Create synthetic wants and thus find space to produce new goods
To satisfy them.
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Government control: Since the late 1980s role of
the government in both developed and
underdeveloped economies has diminished.
Advantage of Government in business is required
to correct market failure manifested in the form
of monopoly & pollution.
Government through monetary & fiscal regulation
attempt to create stable business conditions
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Environment by definition is something external of an
individual or an organization.
Therefore in strict sense, business environment refers to an
external factors which have a direct or indirect bearing on
the activities of business.
Certain aspects of both internal and external environment
pose a threat to business, other aspects provide
opportunities for business growth.
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ENVIRONMENTAL SCANNING
What do you mean by Environmental
scanning?
It is the process of monitoring & collecting
the information about the various current
and potential changes taking place in the
environment to facilitate in decision
making and problem solving.
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ENVIRONMENTAL SCANNING
Objectives of Environmental scanning:
1. To provide and understanding of current and

potential changes taking place in the environment.
2. To provide inputs for strategic decision-making.
3. To facilitate and foster strategic thinking in

organization.
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Benefits of Environmental scanning
Firms which systematically analyze and diagnose the environment

are more effective than those which dont
1.
Development of broad strategies and long term policies of

the firm.
2.
Development of action plans to deal with technological

advancements.
3.
To foresee the impact of socio-economic changes at the

national & international level.
4.
To analyze the competitors strategies and formulation of

effective counter-measures.
5.
TO keep oneself dynamic.
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Business Environment-Internal Factors
Internal Environment :
Value system, Goals and objectives,
Management structure,
Relationship among the various
constituents,
Physical assets,
Technological capabilities
Human, financial and marketing
resources make the internal environment
of business.
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Internal Environment :
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Persons holding top positions in certain modern enterprises have

some values which influence their policies, practices and overall
internal environment.
Ex: JRD TATA Value system responsibilities towards his

employees did some some commendable work in the field of labor
welfare.
Attitude of TATAs to employ 8 disabled persons out of their total

workforce of more than sixty thousand.
The company value system need not be always positive. It can be

totally negative.
Cases of pharmaceutical companies selling banned drugs world

over.
Rational firms attempt maximize long-run profit.

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Business Environment-Internal Facto

There are often differences in the goals and objectives of the
various firms, which in turn, lead to differences in the overall
internal environment and also in priorities, policies and direction
of development.
Ex: Corporate enterprise professionally managed or family
controlled.
Board of Directors - dynamic entrepreneurs capable of taking

quick decisions or the BOD may be dominated by persons with
conservative or bureaucratic outlook.
Nominees of Financial institutions having large holdings their
decision making.
Conflicts among BODs, Erosion of shareholders confidence in the
BODs
Serious differences among the senior executives officers on critical
matters are critical factors in the Cos internal working conditions.
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Functioning & Competitiveness of a company are very much
influenced by physical resources, Production technology,
R&D work and distribution logistics.
Cos R&D activity and the speed at which technological

changes occur determine Cos internal environment which
in turn influence Business decisions.
Quality of Human Resources of a Company,
Depends on Commitment, attitude and morale of the
employees also have an impact on business as an internal
factor.
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Business Environment-External Factors

External Environment of Business consists of institutions,
Organizations and forces operating outside the company.
External Environment of business may be classified into :
A) Micro Environment
B) Macro Environment
Micro environment refers to such players whose decisions
and actions have a direct bearing on the company. Since
modern business broadly has two aspects, Viz, Production
and selling of goods,
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Micro Environment of Business

The micro environment of business can be
Input Suppliers
divided :
Publics
Workers & their unions
BUSINESS
Customers
Competitors
Marketing
Intermediaries
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Micro Environment of Business

Micro Environment has great relevance on Cos business
operations.
The players in micro-environment do not effect all the
companies in an industry in the same way. Their decisions
and actions often differ in accordance with the size,
capability and strategies of each company.
Ex: 1. Suppliers of inputs are more accommodating if
the Company is large.
2. Competitor does not mind starting price war if the
rival co. is small
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Suppliers of inputs: Important factor in Cos success is low
cost of production of goods.
Availability of raw materials without any interruption
especially raw materials thru out the year lessen the financial
burden on the company.
Sometimes monopolistic suppliers manages to secure
monopoly control over the supply of some strategic raw
material, such as iron ore or copper, it starts regulating its
supply to generate maximum possible monopoly profits.
No Co. should depend for the supply of some input on single
source.
Supply management should be high on agenda of the
company.
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Business Environment-Internal factors

Workers and their Unions:
Labor is an important input in production.
Any policy that disturbs labor peace at the company level
may adversely affect its competitiveness.
Also constant conflict between labor and management will
not allow the company to grow and overtime may
transform into a sick unit.
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Customers: Demand for product individuals, business
enterprises, institutions & the government.
loyalty depicts customer satisfaction.
Universally accepted fact that the satisfaction of customers

is the ultimate bench mark of the Cos success.
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Marketing intermediaries: Wholesalers, retailers, distribution firms agents etc
constitute an important element .
Co. lacking its own distribution channels cant afford to have conflict or
strained business relations.
Some Cos adopt direct mail or data base marketing.

EX; nestle slump in demand for baby products France
CO. could have responded to this situation by lowering production laying-off
workers.
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Competitors: Brand Competition: affect sales operations of the business
firms.
A Company encounters various forms of competition. The most common
competition which a companys products faces is from differentiated
products of other companies.
Ex: In the Air conditioner market Voltas air conditioner faces competition
from other branded air conditioner such as Videcon, Elgi, Samsung
companies.
Public : Environmentalists, consumers protection groups & media

persons may influence both Production & Sales.
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Macro environment
Macro environment of business consist of the
following factors:
A. Economic Environment
National
Global
B. Non Economic Environment
Political
Socio Cultural
Demographic
Technological
Natural
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Economic Environment of the Business (National)
Business enterprise is essentially an economic institution. It conducts its activities

in the market system with the objective profit maximisation.
In Modern economy there are five sectors contribute to the development of the
economy they are:
The Business sector
The household sector
The capital market
The Government
These factors determine the prospects of business activity.
In a recessionary situation business firms encounter steep fall in effective demand

leads to business slowdown. Developed financial system precondition for the
efficient mobilization of financial resources for the business.
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Global Environment
Globalization- expansion of business
activities across boundaries of the nation
states.
It refers to a process of increasing economic
openness growing economic
interdependence and deepening economic
integration between countries in the world
economy.
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Global Environment
Over the past ten years the Indian economy
is integrates into the global economy.
The three policy measures initiated to realize
the objectives of globalization are:
1. Exchange rate adjustment and rupee
convertibility.
2. Import liberalisation &
3. Opening upto foreign capital
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Political Enviroment
A stable & dynamic political environment due
influences business growth.
In a capitalist economic system corporate firms are
very powerful, yet they have to operate within the
parameters which are determined by the broad
policies of the government.
Ex: MRTP Act, FERA because of the experiences of
the colonial era, Foreign capital & the multinationals
corporations were suspects.
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Legal enviornment
Govt. sets the legal framework within which business
firms operate.
Legislations defining:
property and business organizations,
laws of contracts
bankruptcy( one whos assets are used to repay
debts),
Mutual obligations of labour & management
Laws and regulations, the way the business are
carried out constitute legal environment of business.
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Legal enviornment
Economic legislations can be classified into two categories:
1. legislations facilitatory role in business.
Ex: contract act rules for systematic exchange transactions.

2. legislations- restrictive role in business
Ex: Sherman anti-trust act in 1890, Clayton anti-trust act 1914
Federal trade commission act 1914 of USA to prevent unfair
monopolistic unfair practices.

In India MRTP-Monopolies & restrictive Trade Practice ACT-1969.
Foreign Exchange Regulation Act (FERA) -1973 directly regulated the foreign
exchange related transactions of the indian business.
Both MRTP & FERA diluted stringent & restrictive in nature.
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SOCIO-CULTURAL ENVIRONMENT
Business firms operate in a socio-cultural
environment & their strategies needs to be
formulated keeping this factor in view.
Ex: western countries are modern & liberal.
People-more receptive to new products & no
prejudice against any kind of advertising.
Health conscious-product injurious to health of
the people cant be successfully introduced.
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SOCIO-CULTURAL ENVIRONMENT
Muslim societies conservative. Womens still under Purdah.

Demand for cosmetics & western cloths are limited.
Business firm aiming at capturing markets for its products in
these diversified societies has to be careful about the cultural
sensitivities of these societies.
India- liberal outlook, modeling by young women for
advertising fashionable products, wine & beer is acceptable in
Indian society.
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Technological environment
Technology- Knowledge about machines & processes.
Any business- cannot survive with outdated techniques in
international competition.
Four decades ago technology of Fiat was unsophisticated.

Users had no choice & thus product survived for a long period.
Setting up of Maruti udyog Ltd., the situation changed due to
superior technology.
Technological environment affects business from the demand side as well.
Ex: In a country where power is scarce, demand for electrical appliances will be
limited.
Erratic power supply and frequent load shedding creates market for inverters.
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Thank u.......
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Business Environment

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MODULE -1

NATURE OF MODERN BUSINESS

NATURE OF MODERN BUSINESS.

Nature of Modern Business

Most of the fortune 500 companies are located in the

Nature of Modern Business.

Nature of modern of business

Adding new unrelated products or services for existing customers is

Nature of modern business

Ex: Coco-cola , for example has taken Parle Soft Drinks,

Nature of modern business

Nature of Modern Business

The business through its innovative moves can always

Nature of Modern Business

Objectives of Environmental scanning:

1. To provide and understanding of current and

3. To facilitate and foster strategic thinking in

Benefits of Environmental scanning

Firms which systematically analyze and diagnose the environment

Development of broad strategies and long term policies of

Development of action plans to deal with technological

To foresee the impact of socio-economic changes at the

To analyze the competitors strategies and formulation of

TO keep oneself dynamic.

Business Environment-Internal Factors

Business Environment-Internal Factors

Persons holding top positions in certain modern enterprises have

Ex: JRD TATA Value system responsibilities towards his

Attitude of TATAs to employ 8 disabled persons out of their total

The company value system need not be always positive. It can be

Cases of pharmaceutical companies selling banned drugs world

Rational firms attempt maximize long-run profit.

Business Environment-Internal Facto

Board of Directors - dynamic entrepreneurs capable of taking

Business Environment-Internal Factors

Cos R&D activity and the speed at which technological

Business Environment-External Factors

Micro Environment of Business

Workers & their unions

Micro Environment of Business

Business Environment-Internal factors

Business Environment-Internal factors

Customers: Demand for product individuals, business

enterprises, institutions & the government.

loyalty depicts customer satisfaction.

Universally accepted fact that the satisfaction of customers

Business Environment-Internal factors

Some Cos adopt direct mail or data base marketing.

Business Environment-Internal factors

Public : Environmentalists, consumers protection groups & media

Economic Environment of the Business (National)

Business enterprise is essentially an economic institution. It conducts its activities

In a recessionary situation business firms encounter steep fall in effective demand

Ex: contract act rules for systematic exchange transactions.

Ex: Sherman anti-trust act in 1890, Clayton anti-trust act 1914

Federal trade commission act 1914 of USA to prevent unfair

monopolistic unfair practices.

Muslim societies conservative. Womens still under Purdah.

Four decades ago technology of Fiat was unsophisticated.

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