BUSINESS ENVIRONMENT

QUALITY
Q Quick Response
U Understanding
A Ability
L Loyalty
I Integrity
T Team Work
Y Your Participation
 Business Environment

Challenges

Combat the Environment Threat Exploit Business

(Intensification of competition, Opportunities
Declining market)

Environment factors have direct impact on Business

Environment Dynamics

Environment Analysis
Environment Diagnosis

Business Dynamics
Environment Analysis: The process by which strategists
monitor the economic, governmental/ legal, marketing/
competitive, supplier/ technological, geographic and social
setting to determine opportunities and threats of their firm.

Environment diagnosis: Managerial decisions made by

analyzing the significance of the data of the environment
analysis.
Business Decision Depends on Internal environment

External environment

Internal External
environmen Business environment
t Decision

Controllable Beyond the

Factors control
 Internal Environment

 Value System
 Mission and Objectives
 Management Structure and Nature
 Internal Power Relationships
 Human Resources
 Company Images and Brand Equity
 Physical Assets and Facilities
R & D
 Market Resources
 Financial Factors
 External
Environment

Micro environment Macro environment

Consists of Consists of

[Actors in the company’s Societal forces that effects all

immediate environment] Macro actors in the company’s micro
environment
Economic Factors
l
or a
ct ion
Micro

Po F
Go
Fa Nat
s

liti ac
Co

vt .
s

ca tor
mp
r

lic
te

etit

l– s
b
In

o
Pu rs

Cultural Fa
Customers
National
Factors

Suppliers

Business

Social -
ctors
Marketing Intermediaries
l–
Dem
ogra s ica ors
Environment y t
phi c Ph . fac
Fac ch
tor s Te
Environment

Business Environment
Micro Environment
[Factors affecting the performance of the company]

Suppliers:
Who supplies inputs/raw materials for smooth functioning of company

Top priority for Vender development

Not to depend on one suppliers
Very risky

Lockouts Strikes Production problems

Maintaining stocks/inventories Supply management Scarcity

due to uncertainties Environment
Customers: Major task create and sustain customers

Individual
House holds Do not depend on one customer
Industries
Other commercial establishment Poor Bargaining Very Risky
Government
Other institution

Competitors: Competitors of same products

Compete for discretionary incomes

of the consumer

Desired Generic Product forms Brand competition

competition competition competition
 Market intermedries
Consist of number of firms that helps the company in promoting,
selling and distribution of goods to final buyers.

Market Intermedries

Link between company and the final consumers

Middlemen Physical
distributing firms Market service Final Intermediaries
(Agents and (Finance market &
Merchants (storing & moving Agencies
goods from origin (Targeting and Insurance Business
to final Risks)
customers) to distribution i.e. promoting
warehouses and products)
transportation)
 Publics
Any group that has an actual or potential interest in or
impact on an organization’s ability to achieve its interests

Media Publics Citizens action Publics Local Publics

 Macro Environment
Economic Environment

Economic Condition Economic Policies Economic System

Nature of the economy Economic Policy of Govt. Free economy

Stage of development (Restrictive import policy) Centrally planed economy
Economic resources Incentive to priority sector Mixed economy
Level of income Monitoring and Fiscal policy
Distribution of income
 Political and Govt. Environment
Close relationship with economic environment

 Communist countries have centrally planned

economic system and policies
 Prohibited the marketing of certain products
 Standardization of products packages
 Media advertisement are not allowed (Libiya)
 Use of children are not allowed in commercial
advertisement
 Restriction of advertisement of certain products
(smoking is injurious to health)
 Changes in Government policies have impact on
business i.e. industrial, tariff policies
Socio-Culture Environment
Successful strategy should have appropriate economic
environment

Customs, traditions, taboos, tastes and preferences the

buying and consumption habits, language, believe and
values, education have impact on business

Language Preett Prestige

Color Green, favourate colour of Muslims but in

Malaysia it is associated with illness

Demographic factor: age, sex, composition of

population, family size, religion, language, caste etc.
also influence the business.
 Natural Environment
Geographic and ecological factor are very important in business
 Climate, weather, topography, location
 Difference in geographic condition
 Ecological factors: Pollution, Degradation of forest i.e. use of wooden boxes,
polythine bags

Physical and Technical Environment:

“Advances in the technologies of food processing and preservation,

packaging etc. have facilitative product improvements and introduction of
new products and significantly improved the marketing of products”

International Environment:

Important for industries depending on import or exports and import

competing industries
(Hike in oil prices Increase the cost of production and
prices of certain products such as fertilizers, synthetic fibers etc.)
Economic environment and
business management
Business environment influences
business management

Critical environment elements interact

with the critical elements of business
management

The critical elements of business

management are planning, direction,
organization, control or coordination,
leading and motivation and evaluation
 Management at all levels of sophisticated
functions is influenced by the critical elements of
business environment e.g.
 When an industry faces business recession
 When the market is invaded by an increasing number of
closely substitutable products
 When the financial institutions start invading too much
 When the government enforces minimum wage legislation
 The existing business environment may act as
either a stimulant or as a constraint for business
management
 A high tax structure increases the propensity to evade
taxes, it induces the corporate tax payers to restrict their
output, sale4s or profits. At the same time, this very
situation provides an opportunity to the tax consultant for
a thriving business
For the management, the environment is
not limited to the institutions of the
Government
A good amount of managerial skill is
required in adjusting to the environment
Environmental scanning
An important step towards corporate
planning and business policy decisions
Corporate managers must analyse the
Strengths (S)
Weaknesses (W)
Opportunities (O)
Threats (T)
The SWOT analysis precedes the making
/ taking of strategic and tactical
decisions by the management
 Economic and Non-economic
Environment: The Interaction
Matrix

 The social environment affects and gets affected

by the economic environment of business
 The educational – cultural environment and the
economic environment of business are also
interdependent
 The politico-legal environment and economic
environment of business are also interlocked
 The historical environment and the economic
environment of business are also interdependent
 Interaction between the physical environment of a
country and the economic environment of the
country
 Interaction matrix
Economic Economic Economic Functioning Economic Economic Economic Economic Economic
Env. system structure of the planning programs policies control and growth and
economy (Long term) (Short term) fiscal and regu lations deve
via sectors monetary lopment
Non-
economic
env.

Socio
logical

Educational
culture

Political
legal

Historical

Physical
Geographic
al
 Advantages India offers to
Foreign Investors
 Political stability in a democratic polity
 A credible judicial system;
 A steadily growing economy – India has had a slow but steady
growth during the past five decades;
 A single-digit inflation rate;
 A vast expanding market
 A vibrant financial system – a network of banking and financial in
situations;
 A number of active stock exchanges
 A number of active stock exchanges
 A credible institutional framework
 A diverse industrial base
 A large and growing pool of trained manpower
 A large English speaking population. By many, English is regarded
as the official language of global business
 A country with geographic and logistic advantages