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1. BUSINESS ENVIRONMENT
UNIT – 1BUSINESS AS A SOCIAL SYSTEM
Business is an integral part of social system and it is influenced by
other elements of society which, in term, is affected by the business.
Today the wholesociety is a business environment.Davis and
Blo ms to rm p o int o ut that in taking an ec o lo gic al view
o f business in a systems relationship with society; three ideas
are significant inaddition to the systems idea.The three ideas
are:1 . V a l u e s 2 . V i a b i l i t y 3. P ub lic vis ib ility
1. VALUES:
Business like other social institutions, develops certain belief systems
andvalues fo r whic h they s tand , and there b eliefs and
values are a s o urc e o f institutional drive. These values drive from a
multitude source, such as the missionof business as a social institution, the
nation in which business is located, the typeof industry in which it is active and
the nature of employees. These values becomeguides for employee’s decisions
in the interface of business. Second, they becomestrong motivators for people in
a business.
2. VIABILITY
Davis and Blomstorms define viability as the drive to line and grow,
toaccomplish the potential not yet reached, and to achieve all that a living
system iscapable of becoming. If a business is to be a viable,
vigorous, institution insociety, it must initiate its share of
forces in its own environment rather thanmerely adjust to outside
forces. Every business needs a drive and spirit all its ownto make it as a positive
actor on the social stage rather than reactor or a reflector.
3. PUBLIC VISIBILITY
The term public visibility refers to the extent that organizations
activitiesare known to person outside the organization. Public

2. visibility is different fromidea of public image. The term public image refers
to what people think about anorganizations act, while are known. The
importance of public visibility is that itsubjects business activities to
public examination, discussion and judgment.These are became business is
integral part of social system. It is a socialorgan to help accomplish the
social goals.
INTERNAL AND EXTERNAL ENVIRONMENT OF BUSINESS
[TYPESOF ENVIRONEMTN]I . I N T E R N A L
E N V I R O N M E N T F A C T O R S
1.Value system
: The value systems of the founders and those at the helm
of affairs have important bearing on the choice of business, the
mission andobjectives of the organization, business policies and
practices. It is a widelyacknowledged fact that the extent to which the value
system is shared by all inorganization is an important factor contributing to
success.
2.Mission and Objectives
: The business domain of the company, priorities,direction of
the development, business philosophy business policy etc
areguided by the mission and objective of the company.Example: Ranbaxy’s
thrust in to the foreign markets and developments have beendriven by its
mission – “to become a researcher based international
pharmaceuticalcompany.”

3. 3.MANAGEMENT STRUCTURE AND NATURE
The organizational structure, the composition of board of directors, extentof
professionalization of management etc, are important factors
influencing business decisions. Some management structures and styles
delay decision makingwhile some other facilitate quick decision making.The
Board of Directors being the highest decision making body which setsthe
direction for the development of the organization and which
oversees the performance of organization, the quality of the Board is
a very critical factor for the development and performance of company.
4.INTERNAL POWER RELATION
Factors like the amount of support the top management enjoys from
thed ifferent levels o f emp lo yees , s hare ho ld ers , and
Bo ard o f Direc to rs have important influence on the decision and
their implementation. The relationship between the members of the board
and between chief executive and the Board arealso critical factors.
5 . H U M A N R E S O U R C E S
The characteristics of the human resources like skill, quality,
morale,commitment, attitude etc., could contribute to the strength and
weakness of theorganization.
6.COMPANY IMAGE AND BRAND EQUITY
The image of the company matters while raising finance, forming
jointventures or other alliances, soliciting marketing intermediaries, entering
purchaseon sale contracts, launching new products etc. Brand equity is
also relevant inseveral of these cases.

4. 7 . O T H E R F A C T O R S
A)Research and development determine a company’s ability to
innovate andcompete.B)Marketing – quality of marketing men, brand
equity, distribution network have direct effect on marketing.
C)
FINANCE 0 financial policies; financial position and capital structure arealso
affecting business performances.D)Physical Assets – production capacity,
technology, distribution logistics
EXTERNAL ENVIRONMENT FACTORS
It consists of 2 types.1. Mic ro enviro nment2. Mac ro enviro nment
I. Micro Environment
T he mic ro enviro nment is als o kno wn as the tas k
enviro nment and operating environment became the micro environment
forces have a direct bearingon the operations of the firm.These include the
factors like …
1. SUPPLIERS
An important force in the micro environment of a company is the suppliers,i. e.
tho s e who s up p ly the inp uts like raw materials and
c o mp o nents to the
c o m p a n y . T h e im p o r t a n c e o f r e lia b le s o u r c e o f
s u p p ly is f o r t h e s m o o t h functioning of business.It is very risky to
depend on a single supplier became of skills, lock out or any other production
problem with that supplier may seriously affect the company.Hence multisource
of supply often helps reduce risks.

5. 2. CUSTOMERS
A business exist only became and its customers. A company
may havedifferent categories of customers like individuals, households,
industries and other commercial establishment and govt. and other institution.
3. COMPETITORS
A firm’s competitors include not only other firms which market the
same products but also all those who compete for the
discretionary income of theconsumers.
4. MARKETING INTERMEDIARIES
The immediate environment of the company may consist of
number of marketing intermediaries which are “firms that aid the
company in promoting,selling and distributing its goods to final buyers.”The
marketing intermediaries includes middlemen such as agents
andmerchants who “help the company find customers or close sales with
them.”
5. FINANCIERS
Another important micro environmental factor is the financier
of thecompany. Besides the financing capabilities, their policies and strategies,
attitudes,ability to provide non financial assistance etc are very important.
6. PUBLICS
“A public is any group that has an actual or potential interest in an impacton an
organizations ability to achieve its interests.” Media publics, citizen
action publics and local publics are some examples.

6. MACRO ENVIRONMENT
It is also called as general environment and remote environment. The
macroenvironment is generally uncontrollable than micro environment,
the success of the company depends on its adaptability to the
environment.The important macro environment factors as follows:
I. TECHNOLOGICAL ENVIRONMENT
Technology is one of the important determinants of success of a firm
aswell as economic and social development of nation. It includes both hardware
andsoftware to solve problems and promote progress.
1. Innovative drive of company
The term innovation means introduction of new product, the use of
newmethod of production. “The technical, industrial and commercial steps
which leadsto marketing of new products and to commercial use of new
technical process andequipment.”
2. Customers Needs / Expectation
Technological orientation and R&D effects of a company may
also beinfluenced by the customer needs and expectation. In several cases the
customer and the supplier have a collaborative relationship to
develop the product or solutions. If the customers are highly demanding,
companies would be compelledto be innovative.
3. Demand conditions
The size of demand influences the choice of the technology . The size
of demand influences the choice of the technological scale. Fast
growing trend of demand would encourage development of technology of
large scale.

7. 4. Suppliers offering
Many times technological changes are encouraged by the suppliers of
acompany, like a capital goods supplier etc.
5. Competitive dynamics
Competition compels the adoption of the best technology and
constantendeavor to innovate.
6. Substitutes
Emergence of new substitutes or technological improvements or
substituteswhich alter technological change.
7. Social forces
Certain social forces like pretext against environment pollution or
other ecological problems demand for eco-friendly products.
8 . R esea rch org a n i za ti on
The technological environment of business is enriched by
researchedorganizations which develops new technologies and provide other
technical inputs.
9 . G o v t . p o l i c y
The govt. contributes to the development to the technology by
its owndirect involvement by establishing research organization and funding
R & D. Thegovt. may encourage private R & D by various incentives.
II. DEMOGRAPHIC ENVIRONMENT
The importance of demographic factors to business is clear from the factsthat
“Management is men” & “Market is people.” i.e., Management
in Men,Material, Machinery and Money, and market is people
in the sense that thedemand depends on the people and their
characteristics – the number, incomelevels, tastes and preferences, beliefs,
attitudes and sentiments.Imp o rtant d emo grap h ic b as es o f market
s egmentatio n inc lud e the following:

8. 1 . A g e s t r u c t u r e 2 . G e n d e r 3. Inc o me d is trib utio n
4 . F a m i l y s i z e 5 . O c c u p a t i o n 6 . E d u c a t i o n
7 . S o c i a l c l a s s 8 . R e l i g i o n 9 . R a c e
10.Nationality D e m o g r a p h ic f a c t o r s s u c h a s s iz e o f
p o p u la t io n , g r o w t h r a t e , a g e composition, ethnic, density of
population, rural – urban distribution, nature of family have very
significant implication for business.
III. ECONOMIC ENVIRONMENT
B u s in e s s p a r t n e r s a n d s t r a t e g ie s a r e in f lu e n c e d b y
t h e e c o n o m ic characteristics. The economic environment includes the
structure and nature of the
economy, the stage of development of economy, economic resources,
level of income, global economic linkages, economic policies etc.
1. Nature of the Economy
The general level of development of the economy has lot of implication
for business – it has significant bearing on the nature and size demand, govt.
policiesaffecting business. The widely used method of classification of the
economies ison the basis of per capita income. Accordingly the low
income, middle and highincome economies.Low income economies are
economies with very low per capita income.High income economies are
economies with very rich income per capita. Middleincome economies are
sub divided into lower middle and upper middle incomewhere income
per capita is neither very high nor low.
2. Structure of the economy
F a c t o r s s u c h a s c o n t r ib u t io n o f d if f e r e n t s t r u c t u r e
lik e p r im a r y (agricultural), secondary (industrial) & tertiary
(secondary) sectors, large, medicine, small sectors to economy.
These factors and the nature of each sector have business implication.

9. For example, India is one of the largest producers of agricultural
products, because of the small and fragmented nature of land holdings,efficient
collection and processing of products become difficult. The land holding pattern
also makes productivity improvements difficult.
3. Economic policies
There are several economic policies which can have very great impact
on business. Important economic policies are
a) Industrial policy
It defines the scope and role of different sectors like private, public,
jointand cooperative. It may influence the location of industrial undertakings.
Choiceof technology, state of operation, product mixes etc.
b) Trade policy
It can affect the fortunes of firms. For example a policy of protecting
thehome industry may greatly help the import competing industries, while
liberationof the impart policy may create difficulties for such industries. This
mean the firmshould come up with quality, cost, and marketing and after sales
service etc.
c) Foreign exchange policy
Exchange rate policy and policy in respect of cross border movement
of capita are important for business.
d) Foreign investment and technology policy
F o reign inves tment and tec hno lo gy p o lic y will inc reas e
d o mes tic c o mp etitio n at the s ame time it wo uld b enefit
many d o mes tic firms – b y permitting global sourcing of capital
and technology, by increasing the quantityand quality of domestic supply
of many goods and services.
e) Fiscal policy
Govt. strategy in respect of public expenditure and revenue can
havesignificant impact on business. The pattern of public expenditure

10. may affect thedevelop of industries. Such as govt. often use tax
incentives or disincentives toencourage or discourage certain
activities. For ex: when industry suffers fromrecession, a reduction of
taxes like excise duty or sales tax may help improve thedemand.
f) Monetary policy
The central bank, by its policy towards the cost and availability of
credit,can significantly influence savings, investments and
consumer spending ineconomy. For example – 1% reduction in cash
reserve ratio will significantlyincrease loan able funds with commercial
banking systems.
IV. NATURAL ENVIRONMENT
The natural environment ultimately is the source and support of everythingused
by business – every raw material, energy resource, life sustaining factor etc.The
natural environment determines what can be got done in a society andhow
institution can function. Resource availability is the fundamental factor is
thedevelopment of business in the society.Thus geographical and ecological
factors, such as natural endowments,weather and climatic conditions,
topographic factors, vocational aspects in theglobal context etc., are all
relevant to business.
1.Geographical factors
: differences in geographical condition between markets may
sometimes call for changes in the market mix. It influences the location
of some industries.E.g. Industries with material index tend to be located near the
raw materialsources
2. Climatic and weather conditions
: It affects the location of certainindustries like cotton textile industry.
Topographic factors may affect the demand pattern in some cases. E.g. in hilly
areas Jeeps are greater demand than cars.

11. Weather and climatic factors affect the demand of certain types of products.E.g.
in region where temperature is very high in summer, there is good demand
for desert coolers.Weather and climatic factors can affect the demand
pattern of clothing, building materials, food, medicines etc. further, weather
and climatic conditionsmay call for modification to the products, packaging
storage conditions etc.
3. Ecological factors: It assumes great importance, the
depletion of naturalresources, environmental pollution another disturbance
of the ecological balancehave carried great concern, govt. policies aimed
as preservation of environment purity and ecological balance, conservation
of non-replenish able resources haveresulted additional responsibilities and
problems for business.