Business Environment

Unit -1
• Indian Business Environment-
– Concept
– Components and Importance
– Economic Environment
– Social & Cultural Environment
– Politico-Legal Environment & their Importance
WHY??????
 Meaning of Business Environment
• Business Environment is made of two words ‘Business’ and
‘Environment’.
• Business- the term business is used in different senses.
– In a function sense, it is used to refer to the functions on activities of
an organization or individual.
– The term business commonly referred to commercial activities aimed
at making profit or to organizations formed to make profit.
• Environment- Means the surroundings, external agents
influences or circumstances under which someone or
something exists. The environment of any organization is the
aggregate of all conditions, events and influences that
surround and affect it.
Definition of Business Environment
Business and its environment are closely inter-related and
mutually interdependent.
Business Environment can be defined as the aggregate of all
those factors, conditions, situations which directly affect the
working of a business enterprise.
According to J. A. Kritz & C. T. Duggan “Business Environment
consist of all external and internal factors that influence the
complex interaction of the market, production and finance-
the three components of the business world.”
According to A. M. Weimer “ Business Environment
encompasses the climate or set of conditions- economic,
social, political or institutional in which business operations
are conducted.
Characteristics of Business Environment
• Surrounding Situation
• Business Environment is complex
• Environment is Dynamic
• Business Environment is Multifaceted
• Scope of Business
• Far reaching impact
• Symbiotic Relationship
• Environment Factor differ from country to country
• Internal and External Environment
• Media of Social Changes
Factors Affecting Business Environment
Internal Environment External Environment
Micro Macro
Strategy
Environment Environment
Economic
Suppliers Environmen
t
Structure Political
Customers/ Legal
Clients Environmen
Personnel Capability t and
Social
Competitor Cultural
s Environmen
Financial Capability t
Technologic
Market-
al
intermediar
Environmen
ies
Marketing Capability t
Demograph
ic
Public Environmen
Operations Capability t
Ecological
or Natural
Environmen
Technical Capability t
Internation
al
Environmen
t
 Internal Environment
• Internal Environment includes internal factors of the
business which can be controlled by business.
• It refers to environment within the organization.
• The internal environment comprises of the
resources, synergy and distinctive competencies of a
firm.
• These together determine its organizational
capability in terms of its strengths and weakness
existing in the different functional areas – marketing,
operations, personal, financial, technical etc.
 Factors affecting Internal Environment
1. Strategy- it serves as a blue print indicating the courses of a action to
achieve the desired objectives.
2. Structure – It means the relationship between different levels of
management, management and shareholders, shareholders and board
of directors, employees to employees, management and labour union,
etc. the better relationship between all these parties affects the
decision-making and their implementations.
3. Personnel Capability – Recruitment , training and development of
personnel in the organization comes under the scope of personnel
capability or human resource management.
4. Financial Capability- It includes factors related to
1. Sources of funds like capital structure, procurement of capital
2. Uses of funds capital investment, fixed assets acquisition, current assets.
3. Management of funds like financial accounting and budgeting management
control system.
 Factors affecting Internal Environment
5. Marketing Capability – The marketing efficiency of a company
depends upon its marketing resources. These resources consist
of the organization for marketing, quality of the marketing-men,
brand quality and distribution network and they have direct
bearing on the marketing efficiency.
6. Operation capability – It relate to the production of the
products or services, use of material resources and all allied
aspects that have a bearing on an organization’s capacity and
ability to implements its strategies.
7. Technical Capability – preparing to meet the unprecedented
challenge of the 21st century is a strategy for organizational
fitness including leveraging limited resources to effect dramatic,
rapid and continuous improvement is required.
 Factor Affecting External Environment
 External Environment refers to external aspects of the
surrounding of business enterprise which have influence
on the functioning of business.
 According to William Glueck and Jauck “In Environment,
There are external factors, which constantly bring
opportunities and threats to the business firm. It includes
social, economic, technological and political conditions.”
 Types of External Environment
The Micro Environment of Business
The Macro Environment of Business
 Micro Environment
• The Micro Environment consist of the factor in the
company’s immediate environment that affect the
performance of the company. These include:
– Supplier
– Marketing
– Intermediaries
– Competitors
– Customers
– Public
 Macro Environment
The Macro Environment forces are beyond the control of
the company management. A detailed discussion of these
forces are following:
1. Economic Environment
2. Political Legal Environment
3. Social and Cultural Environment
4. Technological Environment
5. Demographic Environment
6. Ecological or Natural Environment
7. International Environment
 1. Economic Environment
Economic Environment includes all those elements that
influence the economic activity. These activity are as follows:
1. Economic System
1. Capitalization
2. Socialism
3. A Mixed Company
2. Economic Condition
3. Economic Policies
1. Monetary Policy
2. Fiscal Policy
3. Industrial Policy
4. Other Economic Factors
 2. Political and Legal Environment
• Political-legal environment has direct economic impact
on business firms.
• Economic and political-legal environment are closely
inter-related.
• Whenever there is a change in Government in a
democratic country through elections, it will herald a
change in economic policies.
• Political and legal environment is an important
element particularly in a mixed economy like ours and
affects directly and working of business organizations.
 3. Social and Cultural Environment
• Social attitudes and values, such as expectations of society from
business, social customs, beliefs, ritual and practices, changing life-
style patterns and materialism.
• Social concerns, such as the role of business in society,
environmental pollution, corruption, use of mass media and
consumerism.
• Educational levels.
• Family structure and changes in it, attitude toward and within the
family, and family value.
• Role of women in society, position of children and adolescents in
family and society.
• Awareness and work ethics.
 4. Technological Environment
• The Technological Environment refers to the
sum of total knowledge providing ways to do
things.
• It may include inventions and technique which
affects the ways of ding things, that is
designing, producing and distributing products.
• A given technology affects an organization in
the way it is organized and faces competition.
 5. Demographic Environment
Demographic environment differs from country to country
and from place t place within the same country. It may
also change over time. Important demographic factors
are:
• Size, growth rate, age composition, sex composition etc.
of population.
• Family size
• Educational level
• Caste, religion etc.
All these demographic factors are relevant to business.
 6. Ecological or Natural Environment

Ecological Environment includes surrounding

such as land, air, water, forests and all other
natural resources found on the surface of the
earth and underground.
 7. International Environment
These industries directly depending on import or
export competing industries are affected by
international environment.
 Significance of Business Environment
 Survival and Growth
 Business Decision
 To Analyze External Factors
 Knowledge of Internal Environment
 To understand international event, pressures and impacts
 To ensure optimum utilization of resources
 Reputation of the company
 Corporate planning and business policy Decision
 To find out threats opportunities of business
 To adjust with technological advancement
 Other benefits
 Nature of Business Environment
The organizational environment are
multidimensional. The multidimensional
features are as explained below:
 Complexity
 Volatility
 Capacity