 MEANING OF BUSINESS ENVIRONMENT social cultural environment, demographic environment, technological

BUSINESS ENVIRONMENT CONSISTS OF ALL THOSE FACTORS THAT HAVE A environment, global environment.
BEARING ON THE BUSINESS.  COMPETITIVE STRUCTURE OF INDUSTRIES
FACTORS AFFECTING BUSINESS DECISIONS Analysis of forces affecting competitive dynamics of an industry is
 TYPES OF BUSINESS ENVIRONMENT useful in formulating strategies.
I. INTERNAL/CONTROLLABLE FACTORS Michael Porter’s model of structural analysis of industries depends
II. MICRO /TASK/OPERATING ENVIRONMENT on 5 basic competitive factors:
III. MACRO/GENERAL/REMOTE ENVIRONMENT 1. Rivalry among existing firms
 1. INTERNAL FACTORS 2. Threat of new entrants
The company can control or modify these factors. Personnel, Physical 3. Threat of substitutes
facilities, Organizational and functional means-marketing mix-price, product, 4. Bargaining power of suppliers
promotion, place. 5. Bargaining power of buyers
An organization has a certain mission, objective (s) & goals and a  RIVALRY AMONG EXISTING COMPETITORS
STRATEGY to achieve them. Firms in an industry are mutually dependent. Competitive moves
Formulation of a strategy is defined as FIRM-ENVIRONMENT FIT. could include price changes, promotional measures, customer service,
SWOT Analysis is one of the first steps in strategic management process. warranties, product improvements, new product introduction, channel
 VALUE SYSTEM promotion.
Value System of the founders of an organization has an important bearing on FACTORS AFFECTING INTENSITY OF RIVALRY
the choice of business, mission, objectives of the organization, business policies 1. Number of firms, Relative Market share
and practices. 2. State of growth of the industry
Ethical standards and value system of an organization affect the 3. Fixed Costs
choice of vendors, suppliers, distributors, collaborators. 4. Indivisibility of Capacity Augmentation
 MISSION & OBJECTIVES 5. Product Standardization: Price, distribution, After sales service,
The business domain of the company, priorities, direction of credit become important factors.
development, business philosophy, business policy are guided by the mission 6. Strategic Stake
and objectives of the company. 7. Exit Barriers
 MANAGEMENT STRUCTURE & NATURE 8. Diverse competitors
The organizational structure, the composition of BOD, extent of 9. Switching Costs: Cost of retraining the employees, cost of ancillary
professionalization of management are important factors influencing equipment.
management decisions. 10. Expected Retaliation
 OTHER INTERNAL FACTORS  THREAT OF NEW ENTRY
 INTERNAL POWER RELATIONSHIP * HUMAN RESOURCES  Potential competition tends to be high if the industry is profitable or
 COMPANY IMAGE & BRAND EQUITY critical, entry barriers are low and expected retaliation from firms is not serious.
 R & D TECHNOLOGICAL CAPABILITIES Common entry barriers include:
 MARKETING RESOURCES *FINANCIAL FACTORS 1. Government Policy
 2. MICRO ENVIRONMENT 2. Economies of Large scale production
Micro environment factors have a direct bearing on the operations of a 3. Cost disadvantage Independent of scale of production
company. These include factors in the immediate environment affecting the 4. Product differentiation
performance of the company. Suppliers, Marketing Intermediaries, 5. Monopoly element
Competitors, Customers and Public. 6. Capital Requirement
The relative success of a company depends on effectiveness in  THREAT OF SUBSTITUTES
dealing with these factors.  Substitutes limit the potential returns in an industry. Firms face
competition from close and distant substitutes of a product.
 SUPPLIERS  Substitutes produced by industries earning high profit and those that
 Sensitivity of supply may lead companies to give high importance to produce products with improving price-performance trade-off are a potential
Vendor Development. Vertical Integration may be adopted. threat.
 Overdependence on one supplier may affect business. Multiple  BARGAINING POWER OF BUYERS
source of supply often mitigate the risk.  Buyers are potential competitors with different degrees of
 Globally companies are resorting to Partnering/Relationship bargaining power.
Marketing.  Important determinants of buyer power:
 CUSTOMERS 1. Volume of purchase relative to total sale
 Customers could include Individuals, Households, Industries and 2. Importance of the product to the buyer
other commercial establishments. Monitoring the customer sensitivity is a 3. Extent of standardization/Differentiation of the product
prerequisite for business success. 4. Switching costs
 Overdependence on one customer leads to monopsonistic 5. Profitability of the buyer
exploitation. 6. Potential of backward integration by buyer
 The choice of the customer segment depends upon factors :relative 7. Importance of Industry’s product with respect to quality of buyer’s
profitability, dependability, stability of demand, growth prospects, extent of product/services
competition. With globalization the customer environment is more global. 8. Extent of buyer’s information
 COMPETITORS  BARGAINING POWER OF SUPPLIERS
They include other firms in the market with same or similar products Important determinants include:
(Monopolistic Competition, Oligopoly, Perfect Competition) and other firms 1. Extent of domination in the supplier industry
which compete for the same disposable income. 2. Importance of product to the buyer
GENERIC COMPETITION: Competition amongst categories which 3. Importance of the buyer to the supplier
satisfy particular category of demand. 4. Extent of substitutability of the product
PRODUCT FORM COMPETITION: 5. Switching costs
BRAND COMPETITION: 6. Extent of standardization/differentiation of the product
 MARKETING INTERMEDIARIES 7. Potential for forward integration by suppliers.
Firms that aid in promoting, selling, distributing its goods to final  STRATEGIC GROUPS
buyers. There are a number of homogeneous firms in a heterogeneous
These include middlemen like agents, merchants who assist in industry. It to necessary to identify various strategic groups in an industry.
closing sales, physical distribution firms such as warehousing, transportation  A firm’s competitors are those within the immediate strategic group.
firms, marketing service agencies, advertising agencies, market research firms,  The nature and intensity of competition and business prospects vary
media firms, consultants, financial intermediaries. across strategic groups.
 FINANCERS & PUBLICS  High mobility barriers insulate group from new entrants.
FINANCERS  Competitive standing of different strategic groups would be different
The policies, strategies, attitude towards risk, ability to provide non- for the competitive forces.
financial assistance.  COMPETITOR ANALYSIS
PUBLICS  Competitor Analysis helps formulate right strategies and right
Any group that has an actual or potential interest in or impact on an positioning of the firm in the industry.
organization’s ability to achieve its interest.  Environment Analysis & Strategic Management
Media, Consumerism. Strategic Management Process involves determining the mission,
 3. MACRO ENVIRONMENT The macro factors are more objectives, analysis of environmental opportunities and threats and evaluating
uncontrollable than micro factors. The regulatory and political environment, the strengths and weaknesses of the firm to tap the opportunities or to combat
threats, formulating strategies to achieve the objective on the basis of SWOT
analysis, choosing the most appropriate strategy, implementation of the
strategy and reformulation of the objectives or strategy if needed.