Business Environment, Legal and Business Environment, JNTU Kakinada, Unit I, Introduction to Business Environment. Internal Environment, External Environment

1. BUSINESS ENVIRONMENT
Unit I

2. BUSINESS
• Business may be understood as the organized efforts of
enterprises to supply consumers with goods and
services for a profit.
• It is a continuous production and distribution of
goods and services with the aim of earning profits under
uncertain market conditions.

3. Business Environment
• Business environment refers to those aspects of the
surrounding of business enterprise which have
influence on the functioning of business.
• An organization can survive and grow only when it
continuously and quickly adapts to changing
environment.

4. Business Environment
• The business environment is the combination of internal
and external factors of a business.
• The internal factors are within the organization to
control the activities is called as internal factors, whereas
• External factors are beyond the control of a business
like economic environment, political, social, cultural,
technological and international environment of a
business environment.

5. Business Environment
• DEFINITION
• “Business environment is the climate or set of conditions
economic, social, political or institutional in which
business operations are conducted”
-Arthur M.Weimer

6. Business Environment
• DEFINITION
• “Business environment is the total of all things external to business
firms and industries which affect their organization and operations”
-Bayard O.Wheeler
In general words we can say business environment is the surroundings
in which business exists.

7. NATURE AND CHARACTERISTICS OF
BUSINESS ENVIRONMENT
1. Business environment is compound in nature.
2. It is constantly changing process.
3. It is different for different business units.
4. Unlimited influence of external environment factors.
5. It is very uncertain.
6. Inter-related components.
7. It includes both internal and external environment.

8. IMPORTANCE AT NATIONAL AND
INTERNATIONAL LEVEL
1. Development of broad strategies and long-term policies of the
firm.
2. Development of action plans to deal with technological
advancements.
3. To foresee the impact of socio-economic changes at the national
and international levels on the firm’s stability.
4. Analysis of competitor’s strategies and formulation of effective
countermeasures.

9. IMPORTANCE AT NATIONAL AND
INTERNATIONAL LEVEL
5. To keep oneself dynamic.
6. Complete knowledge of internal environment.
7. Economic policies of the Government.
8. To face business problems and challenges.

10. PROBLEMS AND CHALLENGES OF
BUSINESS ENVIRONMENT
• Macroeconomic Stability:
• Even moderate levels of inflation (between 20% and 40%) are a constraint on
enterprise performance and growth.
• The Legal system:
• Existing commercial laws are poorly enforced and the legal infrastructure is week.
• Taxation and regulation:
• High tax rates are the largest constraint on enterprise performance and growth in the
area of taxation and regulation.
• Tax evasion and arrears are major problems and result in high burdens for enterprises
that pay taxes. Excessive regulation encourages corruption.

11. PROBLEMS AND CHALLENGES OF
BUSINESS ENVIRONMENT
• Crime and corruption:
• Crime is a significant problem for enterprises. Corruption is high, harming domestic
enterprises and deterring foreign investment.
• Corruption often affects small enterprises more than medium sized enterprises.
• Access to finance:
• High interest rates and poor access to long term loans are the most significant problem
related to access to finance.
• Access to finance is a greater constraint for small enterprises than for medium or large
enterprises.

12. FACTORS BOTH INTERNAL AND
EXTERNAL INFLUENCING BUSINESS
ENVIRONMENT
Business
Environment
Internal
Environment
Primary
Activities
Supportive
Activities
External
Environment
Micro
Environment
Macro
Environment

13. Internal Environment
I. Primary Activities:
1. Inbound logistics: Receiving, storing, material handling, warehousing, inventory
control, vehicle scheduling and returns to suppliers
2. Operations: Convert the raw material to finished products, such as, machining,
packaging, assembly, equipment maintenance, testing, and printing and facility operations
3. Outbound logistics: All the activities associated with collecting, storing and distribution
of goods to final consumers
4. Marketing and sales: Induce the buyers to purchase the products, such as advertising,
promotion, sales force, channel of distribution and pricing.
5. Financial Resources: It is also an important internal environment affecting business
performances, strategies and decisions. It includes the factors related with financial policies,
financial position and capital and structure, etc
6. Service: Activities associated with providing service to enhance or maintain the value
of the product such as installation, repair, repair, training, and parts supply and product
adjustment.

14. Internal Environment
I. Supportive Activities:
• Internal power relationship:
• It means the relationship between different levels of management,
management and shareholders, shareholders and board of directors,
employees to employees, management and Labor union, etc.
• Procurement:
• Activities related with the procurement or purchasing of different
items, such as, raw material, machinery, services and so on.
• Technology Development:
• Technology development means improvement in this know-how,
whether by the R&D department of the firm or by outsider.
Human Resource Management:
• Recruitment, training and development of personnel in the
organization comes under the scope of human resource
management. It has great impact on the internal environment of the
firm.

15. Macro/Remote environment:
1. Economic environment
2. Political environment
3. Legal environment
4. Socio-cultural environment
5. Demographic environment
6. Natural environment
7. Technological Environment
8. Global or International environment

16. Economic environment
• Economic System:
• Socialist Economic System: Under socialistic economic system,
the factors of producing are to be organized, owned and managed
by the government.
• Capitalist Economic System: A capitalist economic system is that
system which encourages private enterprises, free play of market
force, strong competition and directs the scare resource to most
profitable once.
• Mixed Economy: It is a midway between socialist economy and
capitalist economy. Co-existence of both public and private sectors
is the feature of mixed economy. Our Indian economy system is
also a mixed economy.

17. • Economic Policies:
• The term economic policy refers to Government policy towards
economy as a whole.
• Economic Conditions:
• The impact of economic environmental changes can be seen on
business prospects over time in different ways.

18. • Political Environment:
• All business firms are directly affected to a greater or lesser
degree by the government and its programmes.
• Political forces will decide the nature of business, programmes
and projects to the undertaken for the development of the country.
• If any changes in the political scenario of the country can lead to
change in the economic policies.
• Natural Environment:
• It includes all the geographical conditions which influence the
type of industries and business in a region.
• The people of a particular geographical region will have similar
tastes, preferences and requirements.
• The geographical situation such as climate, rainfall, humidity etc.

19. • Financial Environment:
• The financial environment is also an important constituent of the
economic environment as it is affected by the efficiency and
efficacy of the financial environment of the country.
• The level of development of the financial system plays a crucial
role in the business.
• The financial system of our country can broadly be divided in two
parts: money market and capital market.

20. • Demographic Environment: Demographic is a study of
human population with reference according
• Change in the size and structure of population.
• Age, sex and size of a family of population.
• Language, caste, education, religion of population.
• Economic level of population.
• Social and Cultural Environment:
• Social and cultural attitude of a region influence the business
organizations of the regions in variety of ways.
• The business practices and the management techniques of the
organization should cope with the social and cultural attitude of the
people. Ex: Wallmart in Japan

21. • Technological Environment:
• Technology means “the systematic knowledge of the industrial
arts”. Techniques donate the method of performance. There are two
increasingly use in modern literature on industrial production the
present age is the age of the technology.

22. Micro or Operating Environment
• Competitive position:
• A business can improve its strategies by assessing its competitive position for
optimizing environmental opportunities.
• Customer profile:
• The strategies of the firm should concentrate on the desire and needs of
customers.
• Suppliers and Creditors:
• Labour market:
• For a firm’s success, it is pre-requisite to attract and hold capable employees.
• Public:
• Every company has to encounter with certain public like, media, citizens, local
public, etc.

23. ENVIRONMENTAL SCANNING