Business Environment

Arguments for Social Responsibility

There are several core ideas about social responsibility of business. Over the period of time, the things have
changed too much giving new thoughts and replacing the classical economic view of profit maximization in
the business. Based on this feature in the present context, arguments for social responsibility are as follows:

1. Business is a part of society

Business is a part of society. Society is a system and business is one of its subsystems. Every subsystem of a
system functions for the betterment of the whole system and not for its own betterment only. This version
applies to business too. Therefore, business is responsible for the society as a whole and profit motive of the
business cannot have precedence over other motives of the society.

2. Long-term Self-interest of Business

Social responsibility is in the long-term self-interest of the business. Existence of any business is because of
existence of various social organs like financiers, employees, customers, society as a whole, etc., and not
otherwise. Therefore, business should provide satisfaction to all these organs on continuous basis for its
continued existence. By discharging social responsibility, the business may provide this satisfaction.

3. Moral Justification

Social responsibility has moral justification. This moral justification emerges from the fact that if any one
takes something from others, he must give something to them in return. On moral ground, this equation
must be based on equity so that it continues. A business takes various inputs (money, materials, people,
information, etc.) from the society and gives outputs (goods and services) to the society by using various
inputs. System of taking inputs and giving outputs works well only if it fulfills social requirements.

4. Creating Better Public Image

Any business which involves in fulfilling the aspirations of the society creates better image in the public.
Creation of this type of image is a source of satisfaction itself for those who operate business. This also helps
in increasing the business volume, both in terms of taking inputs and giving outputs.

5. Avoidance of Government Regulations

Government aims at maintaining equilibrium in the society on long-term basis. For this purpose, it tries to
ensure that every organ of society meets social requirements. If any organ fails to do so, government has
power to take actions against it. Since business is an organ of the society, government may take actions
against those business organizations which involve in activities not meeting social requirements. In order to
avoid such actions having long-term negative impact, it is preferable to adopt social responsibility.

6. Maintenance of Society

For maintaining society, there are legal provisions but these provisions cannot be comprehensive because of
social changes on continuous basis. Therefore, the business has to be socially responsible in order to avoid
anti-social activities so that society is maintained on continuous basis.

Arguments against Social Responsibility

There are various arguments against social responsibility though most of these are based on classical
economics. These arguments are as follows:

1. Contrary to Basic Function of Business

The basic function of a business is to provide a product to its customers at a price which is lower than the
level of satisfaction provided by the use of the product or, at the most, equal to that. If this relationship is
reversed, the product becomes meaningless. Generally, cost of production is a significant factor in
determining the product price. Discharge of social responsibility adds to cost, hence product price which may
reverse the above equation and business may not remain viable in the long term.

2. Conflict with Profit Motive

Social responsibility is in conflict with profit motive of business. Undertaking business involves assuming risk.
Earning profit is the reward for this risk. If social responsibility is added as an objective of business, it reduces
profit margin which is against the concept of profit optimization even if not profit maximization. Thus, social
responsibility and profit motive do not proceed in the same direction.
3. Distortion in Resource Allocation

Social responsibility leads to distortion of resource allocation. Resources in an economic system are allocated
on the principle that every resource finds its most optimum utilization. This utilization is best possible
without social responsibility and not with it. Thus, social resources may go in waste if the concept of social
responsibility is added to business operations.

4. Imposition of Business Values

Discharging social responsibility involves lot of influence of the business on the society. Therefore, by
undertaking social responsibility, a business is likely to impose its own values on the society, thereby
replacing the social values with business values. This phenomenon has taken place in many cases. This is
highly undesirable from social point of view.

5. Inefficiency in the System

Social responsibility brings inefficiency in the system. There is no substitute for the power of self-interest to
get people to act. Any replacement of self-interest will, therefore, be fatal to the efficiency of the system.
Social responsibility tends to replace self-interest of business defined in terms of profit motive to a great
extent, thus, making the business as a system inefficient.

6. Operational Problems

There are certain operational problems in implementing social responsibility. Conceptually as well as
operationally, social responsibility is a confusing term. Therefore, managers involved in managing business
affairs are not very clear about what they are expected to do under social responsibility. As a result, actions
ranging from mere showing lip sympathy to undertaking multi-crore concrete programmes are included in
social responsibility.

The term ‘business environment’ connotes external forces, factors and institutions that are

beyond the control of the business and they affect the functioning of a business enterprise.

These include customers, competitors, suppliers, government, and the social, political,

legal and technological factors etc. While some of these factors or forces may have direct
influence over the business firm, others may operate indirectly. Thus, business environment

may be defined as the total surroundings, which have a direct or indirect bearing on the

functioning of business. It may also be defined as the set of external factors, such as

economic factors, social factors, political and legal factors, demographic factors, technical

factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

3.1.1 FEATURES OF BUSINESS ENVIRONMENT

On the basis of the above discussion the features of business environment can be

summarised as follows.

(a) Business environment is the sum total of all factors external to the business firm and

that greatly influence their functioning.

(b) It covers factors and forces like customers, competitors, suppliers, government, and

the social, cultural, political, technological and legal conditions.

(c) The business environment is dynamic in nature, that means, it keeps on changing.

(d) The changes in business environment are unpredictable. It is very difficult to predict

the exact nature of future happenings and the changes in economic and social

environment. .

(e) Business Environment differs from place to place, region to region and country to

country. Political conditions in India differ from those in Pakistan. Taste and values

cherished by people in India and China vary considerably.

IMPORTANCE OF BUSINESS ENVIRONMENT

There is a close and continuous interaction between the business and its environment. This

interaction helps in strengthening the business firm and using its resources more effectively.

As stated above, the business environment is multifaceted, complex, and dynamic in nature

and has a far-reaching impact on the survival and growth of the business. To be more

specific, proper understanding of the social, political, legal and economic environment

helps the business in the following ways:

(a) Determining Opportunities and Threats: The interaction between the business
and its environment would identify opportunities for and threats to the business. It

helps the business enterprises for meeting the challenges successfully.

(b) Giving Direction for Growth: The interaction with the environment leads to opening

up new frontiers of growth for the business firms. It enables the business to identify the

areas for growth and expansion of their activities.

(c) Continuous Learning: Environmental analysis makes the task of managers easier in

dealing with business challenges. The managers are motivated to continuously update

their knowledge, understanding and skills to meet the predicted changes in realm of

business.

(d) Image Building: Environmental understanding helps the business organisations in

improving their image by showing their sensitivity to the environment within which they

are working. For example, in view of the shortage of power, many companies have

set up Captive Power Plants (CPP) in their factories to meet their own requirement of

power.

(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and

formulate their own strategies accordingly.

(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify

the individual strengths and weaknesses in view of the technological and global

developments.

Environmental analysis is a strategic tool. It is a process to identify all

the external and internal elements, which can affect the organization's
performance. The analysis entails assessing the level of threat or
opportunity the factors might present.

Objectives
1. Help understanding Existing Environment

It is important that one must be aware of the existing environment. Business Environment analysis should
provide an understanding of current and potential changes taking place in the micro environment. Micro
environment specifies the type of products to be offered, the technology to be adopted and the productive
strategies to be used to face the global competition.

2. Provision of Data for Strategic Decision-making

Business Environment analysis should provide necessary data for strategic decision-making. Mere collection
of data is not adequate. The data so collected must be used for strategic decision-making.

3. Facilitating Strategic Linking in Organizations

Business Environment analysis should facilitate and foster strategic linking in organizations.

Process of Business Environment Analysis

The process of Business environment analysis involves many steps,

which are as follows:

Collection of necessary information.

Scanning and searching of information.

Getting information by spying.

Forecasting the conditions.

Observing the environment.

Assessing.

We shall now discuss each one of them briefly.

1. Collection of necessary Information

Collection of necessary information is the first stage in the process of
business environment analysis. It involves the observation of various
factors prevailing in a particular area also. If an environment is to be
analyzed, written as well as the verbal information from various sources
with regard to the elements of environment for that particular business
is to be collected first.

2. Scanning and Searching of Information

Scanning and searching is an important technique of business

environment analysis. Once the necessary information has been
collected, it should be put to scanning. Besides, the search for other
relevant information also continues. This technique gives results as to
the hypothesis already established. This helps the analyst to know as to
what are the conditions prevailing for a particular business at a time.

3. Getting Information by Spying

Spying is also one of the techniques of business environment analysis.

When the activities of a particular business are to be analyzed and such
information cannot be collected by traditional methods, the technique
of spying is resorted to. This happens especially when business rivalry
exists. Mostly, this technique is used to collect competitive information.

4. Forecasting the Conditions

Scanning provides a picture about the past and the present. However,
strategic decision-making requires a future orientation. Forecasting is
the scientific guesswork based upon some serious study. So it helps to
know how a business in particular and conditions in society in general
are going to take shape.

5. Observing the Environment

One can analyze a business environment by merely observing it. The

observation reveals various conditions prevailing at a particular point of
time. This is helpful in understanding the existing environment in its
entirety so that suitable decisions can be taken.

6. Assessing

Assessment is made to determine implications for the organization’s

current and potential strategies. Assessment involves identifying and
evaluating how and why current and projected environmental changes
affect or will affect strategic management of the organization. It aims at
answering questions, like what are the key issues presented by the
environment? what are the implications of such issues for the
organization?