BEUnit 1(1).pptx

AN OVERVIEW OF BUSINESS ENVIROMENT
&
STRUCTURE OF INDIAN ECONOMY
UNIT-I
DR. MALINI SINGH THAKUR

According to L. H. Haney, “Business may be defined as human activity
directed towards producing or acquiring wealth through buying and
selling of goods.”
Important Characteristics of a Business
1. Economic activity
2. Buying and Selling
3. Continuous process
4. Profit Motive
5. Risk and Uncertainties
6. Creative and Dynamic
7. Customer Satisfaction
8. Social Activity
9. Government control
10. Optimum utilization of resources
Definition of Business

1. Improvement in standard of living
2. Proper utilization of resources
3.Better quality and Large variety of goods and services
4. Creates utilities
5. Employment opportunities
6. Workers' welfare Business
Significance of BusinessFOR Society

(A) INDUSTRY
The word “Industry” refers to that part of business activities which is apprehensive with
the extraction, production or fabrication of products. The products which are raised,
produced or processed by an industry may either be used by the ultimate consumer or by
another concern for further production.
Types of Industry
Extractive Industries: Extractive industries are those industries which extract,
raise or fabricate raw materials from above or beneath surface of the earth. i.e.
Mining, fisheries forestry, agriculture.
Genetic Industries: Those industries which are engaged in reproducing and
multiplying certain species of animals and plants and selling them in the market for
profit are named as genetic industries. i.e. Cattle breeding farms, poultry farms,
Constructive Industries, Manufacturing & Service Industries
Scope of Business

(B) Commerce
The second element that comes in the scope of business is Commerce. It is a very
important component of business and is concerned with the buying and selling of
goods. It includes all the activities which are connected to the transfer of goods from
the place of production to the ultimate consumers.
(C) Trade
The process of buying and selling of goods is called Trade. It is the exchange of goods
and services among buyers and sellers in which both the parties are benefited. Trade
is classified into two types.
 INTERNAL TRADE
The process of buying and selling of goods within the edge of a country is called
internal trade.
1- Wholesale Trade
2- Retail Trade
Scope of Business

(C) Trade
 EXTERNAL TRADE:
The purchase and sale of goods between two countries are called
external trade. It is also called foreign trade. There are two types of
external Trade.
I Import Trade II. Export Trade
There is also an another form of trade i.e. Aid to Trade.
The activities which help in the purchase of goods and services are
called aids to trade. The aids which are compulsory for the
development of the trade are as follows:-
•Transport
•Insurance
•Warehousing
•Advertisement
Scope of Business

The term business environment refers to the combination of
various factors and forces which have direct and indirect
influence on the functioning and growth of individual
business. These factors may be internal or external to a
business unit.
According to Keith Davis, “Business environment is aggregate
of all conditions, events and influences that surround and
affect the business”.
Concept of Business Environment

1. Aggregative
2. Inter-related
3. Dynamic
4. General and Specific Forces: General forces, such as,
economic, political, natural forces affect all the business
enterprises in the economy in the same manner.
While specific forces, such as, competition, availability of raw
material, customers, etc., influence only a particular business
unit.
5. Uncertainty
6. Relative
7 Complexity
NATURE of Business Environment

CHARACTERISTICSOF MODERNBusiness Environment

(i) Help to understand Internal Environment
(ii) Help to Understand Economic System
(iii) Help to Understand Economic Policy
(iv) Help to Understand Market Conditions
Significance of Business Environment

A business environment is a conglomeration of various inner
and outer forces, factors, and institutions that have an effect
on the functioning and development of companies and firms.
The two main environment that affect the business are:
A. The Internal Business Environment
B. The External Business Environment
TYPES of BusinessEnvironment

THE INTERNAL BUSINESS ENVIRONMENT
INTERNAL
BUSINESS
ENVIROMENT
Value
System
Mission ,
Vision and
Objectives
Management
structure
&
Nature
Internal
Power
Relationships
Human
Resource
Company
Image
&
Brand Equity
Miscellaneous factors:
Physical assets and facilities
Research and Development
Marketing resources
Financial factors

The External Business Environment
It refers to the environment that has an indirect influence on the
business. The factors are uncontrollable by the business.
There are two types of external environment: MACRO & MICRO
Environment.

The External Business Environment
MICRO
BUSINESS
ENVIROMENT
Suppliers Customers
Marketing
Intermediaries
Financiers
Public
 Media
Citizens

The sociocultural environment refers to trends and developments in changes in attitudes,
behavior, and values in society. It is closely related to population, lifestyle, culture, tastes,
customs, and traditions. These factors are created by the community and often are passed
down from one generation to another.
Socio-Cultural variables are :
 Culture. Individual values and habits can change individuals through contact with specific
cultures.
 Habits that represent how to behave in response to a given situation.
 Beliefs and values. Belief refers to how we feel about something or someone.
Meanwhile, values are relatively long-standing beliefs and serve as guidelines for culturally
appropriate behavior.
 Number and growth of population. Increasing the population indeed provides more
labor and demand for goods and services. On the other hand, it can lead to social problems
such as crime and poverty, especially when employment is inadequate.
SOCIO-CULTURALEnvironment

Socio-Cultural variables are
 Age composition. In some countries, productive age populations dominate and provide
opportunities for economic growth and demand for goods and services. However, countries
like Japan, the elderly population dominates. It presents opportunities as well as challenges
for the economy and companies there.
 Geography. Populations may be concentrated in some geographical regions, for example,
on arable agricultural land or in industrial areas.
 Ethnicity. A country, like Indonesia, consists of a variety of different ethnic and ethnic
groups. It has implications for various aspects such as language, culture, habits, and tastes.
 Household and family structure. The population of a community can be broken down
based on the number of children.
 Employment, for example, the composition of white-collar workers vs. blue-collar
workers.
 Wealth and social class. People from different social classes can have different values
that reflect their position in society.
SOCIO-CULTURALEnvironment

In order to formulate appropriate strategies, a company must
identity and understands the nature and degree of competition in
the industry. Michal Porter has developed a model that helps
in identifying the forces that affect the competitive dynamics of
the industry.
According to the model, the competition in an industry depends
upon following five forces:
Rivalry among existing firms
Threats of new entrants.
Threat of substitutes
Bargaining power of suppliers
Bargaining power of Buyers
Competitive Structure of Industries

A) Threat of New Entrants:
New entrants to an industry can raise the level of competition, thereby
reducing its attractiveness.
High entry barriers exist in some industries (e.g. ship building) whereas
other industries are very easy to enter (e.g. estate agency, restaurants).
There are many barriers which can restrict the entry of new industries.
The Key barriers to entry include:
Economies of scale
Capital/investment requirements
Customer switching costs
Government Policy
Access to industry distribution channels
The likelihood of retaliation from existing industry players

B) Threat of Substitutes:
The product of industries that serve identical consumer needs as
those of the industry being analysis.
The threat of substitute products depends on:
i. Buyers’ willingness to substitute
ii. The relative price and performance of substitutes
iii. The cost of switching to substitutes

C) Bargaining Power of Suppliers:
Suppliers are the businesses that supply materials and other
products into the industry. The bargaining power of
suppliers will be high when:
 There are many buyers and few dominant suppliers.
 There are undifferentiated, highly valued products.
 Suppliers threaten to integrate forward into the industry
(e.g. brand manufacturers threatening to set up their
own retail outlets.).
 Buyers do not threaten to integrate backwards into supply.
 The industry is not a key customer group to the suppliers.

D) Bargaining Power of Buyers:
The bargaining power of buyers is greater when:
 There are few dominant buyers and many sellers in the
industry.
 Products are standardized.
 Buyers threaten to integrate backward into the industry.
 Suppliers do not threaten to integrate forward into the
buyer’s industry.
 The industry is not a key supplying group for buyers.

E) Intensity of Rivalry:
The intensity of rivalry between competitors in an
industry will depend on:
The Structure of Competition
The Structure of Industry costs
Degree of Differentiation
 Switching costs
Strategic Objectives
Exit barriers

MEANING OF ENVIROMENT ANALYSIS
Environmental analysis is a systematic process of identifying and
predicting the potential environment variables that can influence the
functioning and profitability of a firm directly or indirectly.
Environment analysis helps in finding out the strengths and weaknesses,
opportunities and threats from internal and external business
environment respectively.
Environment Analysis

Approaches for Environmental Analysis:
1) Systematic Approach: Under the systematic method, information
for the purpose of environment scanning is collected in a systematic
way.
2) Ad-hoc Approach: Under this approach, different surveys and
studies are conducted time to time by an organization in order to deal
with a specific issue. Such studies or surveys are conducted at the time
of starting a new project, restructuring the plans and policies, etc.
3) Processed–form approach: when an organization uses information
supplied by Govt. or private agencies, it uses secondary sources of
data and the information gathered in a processed form.
.

Objectives of Environment Analysis:
1) To Identify Threats, Opportunities, Strengths & Weaknesses
2) To Understand the Change in Environment
3) To Provide Inputs for Decision Making
4) To Formulate Appropriate Strategy
5) To Identify the International Events and their Impact on Business.

Process of Environment Analysis:

Techniques used for Environment Analysis:
Technique1: SWOT Analysis:

Technique 2 ETOP:
ETOP means environmental threat and opportunity profile. It is a
technique of environment analysis where organizations make a profile
of their external environment. It analyses information about
environmental threats and opportunities and their impact on strategic
planning process.
In the next table ↓ shows the unfavorable impact of the factor on the
organization, → shows neutral effect on the organization and ↑ will
depict the favorable impact of the factors on the organization.

Technique 3: QUEST (Quick Environmental Scanning
Technique):
B. Nanus proposed QUEST.
Following are the four steps involved in this technique:
1. Observe the events and trends of the organization.
2. Broadly consider important issues, which may affect the
organization, using environment appraisal.
3. Summarizing these issues, their effects and different scenarios to
show the implementation of these strategies, creates a report.
4. In the last step, make feasibility study of the suggested strategy that
is beneficial for the organization review reports and scenarios.

Technique 4: PESTLE
(Political, Economic, Social Technological Legal and
Environmental) Analysis
PESTLE analysis consists of various factors that affect the business environment.
Each letter in the acronym signifies a set of factors. These factors can affect
every industry directly or indirectly.
The letters in PESTLE, also called PESTEL, denote the following things:
Political factors
Economic factors
Social factors
Technological factors
Legal factors
Environmental factor

Technique 5: BCG (Boston Consulting Group) Analysis
The BCG analysis actually helps you in deciding which entities in your
business portfolio are actually profitable, which are duds, which you should
concentrate on and which gives you a competitive advantage over others.

Strategies based on the BCG Matrix
1)Build – By increasing investment, the product is given an impetus
such that the product increases its market share. Example – Pushing
a Question mark into a Star and finally a cash cow (Success
sequence)
2) Hold – The company cannot investor it has other investment
commitments due to which it holds the product in the same
quadrant. Example – Holding a star there itself as higher investment
to move a star into cash cow is currently not possible.

Strategies based on the BCG Matrix
3) Harvest – Best observed in the Cash cow scenario, wherein the
company reduces the amount of investment and tries to take out
maximum cash flow from the said product which increases the
overall profitability.
4)Divest – Best observed in case of Dog quadrant products which are
generally divested to release the amount of money already stuck in
the business.

Limitations of Environment Analysis
1) Unexpected and Unanticipated Events
2) Part of Strategy Formulation Process
3) Inaccurate Data
4) Involves Money and Cost
5) Based on Assumptions: The whole process of
forecasting is based on certain assumptions which may
or may not be true.

Environment Analysis & STARTEGIC MANAGEMENT

1. Identification of Business Objectives and Purpose
2. Formulation of Strategies:
SWOT analysis focus attention on these four variables viz,
strengths, weaknesses, opportunities and threats. The first
two are internal whereas the last two are external to an
organization.

3. Implementation of the Strategy: The following are
the three important components of strategy:
(a) Resource implementation
(b) Organizational implementation
(c) Functional policy implementation
Corporate Policies
Divisional Policies
Departmental Policies

4. Evaluation of Strategies: The evaluation process
consists of the following:
(i) Fixing standards.
(ii) Measuring Performance
(iii) Analyzing variations.
(iv) Taking corrective action.

Hofstede found significant differences in behaviour and
attitudes of employees and managers from different
countries that worked for IBM.
He further found that national culture explained more
differences in work-related values and attitudes than the
position within the organization, profession, age, or gender.
Hofstede found that managers and employees vary on four
primary cultural dimensions:
1. Individualism/collectivism
2. Power distance.
3. Uncertainty avoidance.
4. Masculinity/femininity (Career success/quality of life).
Managing Cultural Diversity

Managing workforce diversity implies creating an
organisational climate in which a heterogeneous workforce
performs to its best potential; without the organisation
favouring /dis-favouring any particular segment of workforce
with a view to facilitating the best attainment of
organisational goals.
Dimension of Workforce Diversity:
Age
Gender
Education
Culture
Psychology
Managing WORKFORCE Diversity

Techniques of Workforce Diversity Management
Creating Awareness of Diversity
Creating Conditions for Common Organizational Culture
Programmes of Special Care for Diversified Workforce
Career Development Programmes
Avoiding Discriminations
Prevention from Unjust Activities
Committees of Diverse Members

Significance of Workforce Diversity Management
Ability to Deal with Diverse Market
Better Decision-Making
Better Human Relations
Preventing Unnecessary Labour Turnover
Building of Goodwill of the Enterprise

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