Economic environment of business by Neeraj Bhandari ( Surkhet.Nepal )

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  • 1. Economic Environment of Business BBA II Sharda University Prepared by : Neeraj Bhandari
  • 2. Unit 1 : Introduction to Business Environment The concept of Business Environment Significance of Business Environment Impact of Environment on Business and Strategic Decisions.
  • 3. Business : Meaning, Characteristics & objectives • Business refers to the buying or selling of goods or services or the activity of making money by producing and selling goods, or providing services. • Modern business ,spans a vast and complex field of activity involving industry, trade and commerce as they relate to production, distribution and exchange of goods and services. • According to F.C Hooper “ Business means the whole complex field of commerce and industry, the basic industries, processing and manufacturing industries and the network of services which service and inter – penetrate the world of business as a whole”.
  • 4.  Business has certain characteristic : 1. Elements of Enterprise 2. Dealing in exchange of Goods and services 3. Profit Motive 4. Element of risk and Uncertainty 5. Economic Activities related to production and Distribution 6. Element of creation of utilities 7. Element of continuity of Transaction
  • 5. Characteristics of Modern Business Modern Business Large Size Global Reach Oligopolistic structure Technology Based Diversification Government Control Emerging Ethical Consciousness
  • 6. Environment • Environment refers to all external forces which have a bearing on the functioning of business. ”Environment are largely if not totally external, and beyond the control of individual industrial enterprises and their management. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, from country to country”. • However, the term business environment refers to the External Factors. The external environment has two components ie business opportunities and threats to business. • Simmilarly, the organisational environment has two components ie. strengths and weaknesses of the organisation. A SWOT analysis is thus the first step in strategy formulation Business DecisionInternal Environment External Environment Factors influencing Business Decision
  • 7. Business Decision Internal Environment Mission / Objectives Management Structure Internal Power Relationship Physical Assets & facilities Company image Human resources Financial Capabilities Technological Capabilities Marketing Capabilities Financiers Suppliers Customers Competitors Public Mktg Intermediaries Micro Environment Economic Technological Global Demographic Socio-Cultural Political Macro Environment BUSINESS ENVIRONMENT
  • 8. • Internal Environment: Any business has certain vision, mission and objectives and a strategy to achieve them. Formulation of strategy is defined as establishing a proper firm-environment fit. Indeed the objectives should be based on an assessment of the external environment and the organizational factors (internal environment). • The Micro environment consists of different types of stakeholders - customers, employees, suppliers, marketing intermediaries, competitors. It is also known as the Task Environment and Operating Environment and has a direct bearing on the operations of the firm. Changes in the micro environment will directly affect and impinge on the firm's activities. • The Macro Economics : it consist of the factors which are beyond the control of the business.
  • 9. Process of Environmental Analysis The analysis consists of four steps:  Scanning : Detect early signals of possible environmental change and detect environmental change already underway.  Monitoring : Purpose of monitoring is to assemble sufficient data to discern whether certain trends are emerging, identification of the trends and identification of areas for further scanning.  Forecasting : It is concerned with developing projections of the direction, scope and intensity of environmental change.  Assessment : To determine implications for the organization's current and potential strategy. Scanning Monitoring Forecasting Assessment
  • 10. Environmental Analysis and Strategic Management Defining Business Mission and Objectives SWOT Analysis Environmental Analysis + Self Appraisal Strategic Alternatives and Choice of Strategy Implementation of Strategy Evaluation and Control of Strategy
  • 11. POSITIVE/ HELPFUL to achieving the goal NEGATIVE/ HARMFUL to achieving the goal INTERNAL Origin facts/ factors of the organization Strengths Things that are good now, maintain them, build on them and use as leverage Weaknesses Things that are bad now, remedy, change or stop them. EXTERNAL Origin facts/ factors of the environment in which the organization operates Opportunities Things that are good for the future, prioritize them, capture them, build on them and optimize Threats Things that are bad for the future, put in plans to manage them or counter them
  • 12. SWOT Analysis of Indian Economy Strengths • Huge pool of labor force • High percentage of cultivable land • Diversified nature of the economy • Availability of skilled manpower • Extensive higher education system • High growth rate of economy • Rapid growth of IT / ITes Sector • Abundance of natural resources Weaknesses • High percentage of workforce involved in agriculture • Approx a quarter of population below the poverty line • High unemployment rate • Inequality in prevailing socio economic conditions, rural – urban divide • Low productivity • Huge population leading to scarcity of resources • Low level of mechanization • Red tapism, Bureaucracy • Low literacy rates Opportunities • Scope for entry of private firms in various sectors of business • Inflow of FDI • Huge foreign exchange prospects in IT / ITeS • Investment in R & D • Area of infrastructure • Huge domestic market : Opportunity for MNCs • Huge agricultural resources Threats • High fiscal deficit • Threat of government intervention in some states • Growing import bill • Population explosion, rate of growth of population • Agriculture excessively dependent on monsoon
  • 13. Significance and Importance of Business Environment • Firm to Identify Opportunities and Getting The First Mover Advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India . • Firm to Identify Threats and Early Warning Signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on. • Coping With Rapid Changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.
  • 14. • Improving Performance: The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period. • Basis of strategy: Strategists can gather qualitative information regarding business environment and utilizing them in formulating effective plants. • Intellectual stimulation: Knowledge of environment changes provides intellectual stimulation to planners and decision-making authorities. • Image building: Environmental understanding by the management builds image of the company in the minds of the people. They feel that the company is sensitive and responsive to their needs and problems. • Activating management to changing needs: The knowledge of environmental changes sensitizes the management to make strategy to cope with the emerging problems.