The totality of economic factors, such
as employment, income, inflation, interest
rates, productivity, and wealth,
that influence the buying
behaviour of consumers and institutions.
Economic environment can be divided into three
parts. We shall now study their effect on
business. They are as under:
(i) Economic system
(iii) Economic conditions
(i) Economic System:
It is necessary to know about the economic
system prevailing in a country in order to
understand the economic environment. Economic
system influences the freedom or openness of
business. Economic system is mainly of three
(a) Socialistic Economic System
(b) Capitalistic Economic System
(c) Mixed Economic System.
(ii) Economic Policies:
Economic policies deeply influence the business
of a country. The economic policies are laid down
to direct the economic activities.
Economic activities include import-export,
employment, tax structure, industry, public
expenditure, public debt, foreign investment, etc.
In order to direct all these economic activities, the
following economic policies are laid down:
For example, under the import-export policy,
restrictions on imports will benefit the indigenous
(iii) Economic Conditions:
Economic conditions are those conditions which
are related with the possibilities of economic
development of a country. On the basis of the
economic conditions the government starts
various programmes for the welfare of the people.
Some of the examples of economic conditions
are as under:
(a) Flow of Foreign Capital
(b) Supply of Natural Resources
(c) Level of Economic Development
(d) Rate of Interest
(e) National Income
(f) Industrial Development
(g) Foreign Trade
(h) General Price Level.
Political environment is the outcome of a
combination of various ideologies advocated by
different political parties.
Factors connected with the activities of the
government are included in it, e.g., the type of
government (single-party government or multi-
party government), the attitude of the government
towards different industries, progress in passing
The following are some of the examples of the impact
of the political environment on business:
(i) In 1977, the Janata Government adopted a
stringent attitude towards the multinational
companies. As a result of this attitude, the
multinational companies like the IBM and the Coca-
Cola had to ignore India.
(ii) The new government encouraged the
multinational companies for investment in India. This
led to the opening of the doors of the Indian market
for the multinational companies. Consequently, the
Coca-Cola entered the Indian market once again.
Technological environment in 1990s
The success or failure of any business is highly dependent
on the type of technology in use, the level of technological
developments, the speed with which new technologies are
adopted and diffused, the type of technology that are
For many years in the past, India did not have a favorable
attitude towards latest technology to meet foreign
standards. The reservation of products for the small scale
sector sometimes comes in the way of adoption of modern
technology if it involves capital investment higher than the
Technological environment in 1990s
It is only after the introduction of liberalization and
globalization of Indian economy drastic changes have come
in the technological standards in India. Also very high duty
structure made the import of latest technology not only
expensive but also almost impossible.
Today, the scenario has changed. Free availability of
foreign exchange, welcoming foreign collaborations, FDI,
JVs, and setting up of MNCs have led to development of
various R & D centers in many firms. Even the
development taken place in the infrastructure has also
facilitated the technological development
Ethics in the use of business
Scientific advances allow businesses to use
technology to reach goals more easily and more
completely than ever before. In some areas, however,
such applications of technology start infringing on the
rights of individuals and may be unethical.
Governments and ethically operated companies are
aware of these limitations. Governments have passed
privacy laws and regulated communication
companies. Some companies self-censor and apply
internal policies to limit unethical behavior.
Businesses that wish to be considered ethical must
look at whether applying certain technologies may
harm some individuals and constrain such
applications to what is absolutely necessary.
Individual privacy is one area that has been
identified clearly as a base for unethical business
behavior through the application of technologies.
Companies can track Internet usage, buying
habits and individual movement as well as collect
personal information about millions of customers
or even potential clients.
While governments have passed legislation
restricting the collection of personal data and
allowing individuals some control over what
companies can collect and store, ethical
businesses must decide -- independently of
legislation -- what is appropriate behavior.
With new technologies allowing the easy creation
and distribution of images and videos, both
individual employees and companies need
guidelines as to what is acceptable. Without such
guidelines, some of this content will be offensive
to some of the company staff and to some
members of the public.
Companies monitor employees and visitors and
collect much additional information in the name of
security. Ethical issues arise from the continuous
monitoring of employee activity and the recording
of security camera images.
An unjustified level of employee surveillance is
ethically questionable; the ethical company must
try to establish a level of monitoring it can justify.
The surveillance of non-employees, such as
visitors or suppliers' representatives, must be
constrained to an even lower level to be ethically
2G Spectrum Scam
The 2G spectrum scam involved politicians and
government officials in India illegally
undercharging mobile telephony companies for
frequency allocation licenses, which they would
then use to create 2G subscriptions for cell
The shortfall between the money collected and
the money which the law mandated to be
collected is estimated to be Rs.1,76,645 crore, as
valued by the Comptroller and Auditor General of
India based on 3G and BWA spectrum auction
prices in 2010.
Many Acts are passed from time to time in order
to control and regulate business activities.
The sum total of all these Acts creates legal
regulatory environment. Acts are mossy passed
to regulate such business activities as sale-
purchase, industrial disputes, labour, regulating
partnership business, regulating company
business, foreign exchange, etc.
What is Social Environment?
Social environment is the totality of conditions
which concern in the effecting of the activity
feature of a human being. Those conditions
promote or hinder, motivate or restrain, the
characteristic activities of a living being.
Why Study Social
Businesses live within society and the
interrelation between businesses and
stakeholders takes place within a social
They interrelate with society on many
levels: owners, customers, suppliers,
employees, government and the
community as stakeholders
The cultural environment mean a environment
which affect the basic values, behaviours, and
preferences of the society-all of which have an
effect on business decisions. Socio-cultural
All companies often include an examination of the
socio-cultural environment prior to entering their
Case of McDonalds In India.
A Company, which got benefit due to social
environment of India was McDonalds.
All the ethical decisions to respect the tastes of
the Indians and their religious beliefs were taken
McDonalds made sure that it altered the menu to
better suit the taste and religious beliefs of
Business Environment presents two challenges to the
The challenge to combat the environmental threats
Exploit the business opportunities
Business and Society
Course focuses on large businesses (visibility,
power, widely recognized brands), but issues apply
to small and medium-sized companies as well.
The collection of private,
commercially oriented organizations
A broad group of people and other
organizations, interest groups,
a community, a nation.
Society as Macroenvironment
Social Demographics, lifestyles, social values
Processes for passing of laws and election
of officials. Interactions between firms,
politics, and government
Nature and direction of the economy in
which business operates
Changes in technological advancements
taking place in society
Society’s Expectations Versus
Business’s Actual Social Performance