Business involves organized efforts by enterprises to supply goods and services to consumers for profit. It has multiple goals including profit, growth, customer satisfaction, and service to society. Business is characterized by constant change, large size, diversification, globalization, new technology, and intense competition. Both internal factors like management structure and external factors like government regulations and the economic environment influence business decisions. The external environment consists of micro factors like suppliers, customers and competitors, and macro factors like economic conditions, socio-cultural trends, and government policies, which are beyond a firm's control but impact its operations. Understanding both the internal and external business environment is crucial for strategic decision making.

1. Business may be understood as the
organized efforts of enterprises to supply
consumers with goods and services for a
profit
What is Business???

2. Contemporary Business
goals
• Profit (Bottom-line)
• Growth
• Market Leadership
• Customer satisfaction
• Employee satisfaction
• Quality Products & Services
• Service to Society

3. Characteristics of
Business
Characteri
stics
of
Business
Change
Large
Size
Diversif
ication
Globali
zation
Techno
logy
Inform
ation
Compet
ition
Govern
ment
Control

4. Government Control
• To correct market failures in case of externalities
• To create stable business conditions (stimulate Aggregate
Demand) through monetary & fiscal regulation
• To provide Public goods

5. Globalization
• It is a phenomenon which permits mobility of factors of
production across globe except land.
• Refers to a process of deepening economic integration,
increasing economic and growing economic interdependence
between countries in the world economy.

6. BUSINESS CHALLENGES
 Managing Bottom line
 Meeting stakeholders expectations
 Developing and retaining top talent
 Creating a customer responsive organization
 Market agility
 Pricing and quality

7. What do you mean by Business
Environment???
The environment of any organization is “ the aggregate of all
conditions, events and influences that surround and affect it.”
Characteristics of Business Environment:
• Complex
• Dynamic
• Multi-faceted
• Far- reaching impact

8. Why Study Business
Environment
• Development of broad strategies to ensure
sustainability
• To foresee the impact of socio-economic
changes at the national and international levels
on firm’s ability
• Analysis of competitor’s strategies and
formulation of effective counter measures
• To keep oneself dynamic

9. BUSINESS ENVIRONMENT
Business environment may be defined as the set
of external and internal factors which affects the
decisions of business.
“Comprises of the complex factors, largely if not totally
beyond the control of management in which a particular
enterprise operates”.
The firms Success and survival is dependent on its inter-
linkages, synergy and its adaptability to the environment.

10. • Dynamic
• Uncertain
• Opportunity & Threat
• Internal & External factors
• Economic and Non Economic factors
Nature of Business Environment

11. TYPES OF ENVIRONMENT
1) INTERNAL ENVIRONMENT
2) EXTERNAL ENVIRONMENT
BUSINESS
DECISION
INTERNAL
FACTORS
EXTERNAL
FACTORS

13. INTERNAL ENVIRONMENT
Important internal factors are
1) Value System
The value system of founders and those at the helm of affairs
has important bearing on the choice of business, the mission
and objectives of the organization, business policies and
practices.
2) Mission and Objectives
The business domain of the company , priorities , direction of
development, business philosophy, business policy etc. are
guided by the mission and objectives of the company

14. INTERNAL ENVIRONMENT
3) Management Structure and Nature
The organizational structure, the composition of the Board of
Directors, extent of professionalization of management etc.
are important factors influencing business decisions.
4) Internal Power Relationship
Factors like the amount of support the top management
enjoys from lower levels and workers, share holders and
Board of Directors have important influence on the decisions
and their implementation.
The relationship between the members of Board of Directors
is also a critical factor.

15. INTERNAL ENVIRONMENT
5) Human Resources
The characteristics of the human resources like skill, quality,
morale, commitment, attitudes etc. could contribute to the
strength and weakness of the organization.
The involvement, initiative etc. of the people at different
levels may vary from organization to organization.
6) Company Image and Brand Equity
The image of the company matters while raising finance,
forming joint ventures or other alliances, soliciting market
intermediaries, entering purchase or sale contracts ,
launching new products etc.

16. INTERNAL ENVIRONMENT
OTHER FACTORS
1. Physical Assets and Facilities
2. R&D and Technological Capabilities
3. Marketing Resources
4. Financial Factors

17. EXTERNAL ENVIRONMENT
Two Types
a) Micro Environment
Consists of actors in the company’s immediate environment, that
affects the performance of the company.
b) Macro Environment
Consists of larger societal forces that affect all the actors in
company’s micro environment.

18. MICROENVIRONMENT
Also known as task environment and operating environment
Include
The suppliers
Market intermediaries
Competitors
Customers
Publics
More intimately linked with the company than macro factors
The micro forces need not necessarily affect all the firms in a
particular industry in the same way.
Some of the micro factors are particular to a firm

19. suppliers
Those who supply the inputs to the company.
Source/Sources should be Reliable
Uncertainty regarding the supply or other supply constraints
compel companies to maintain high inventories causing cost
increases.
Very risky to depend on a single supplier
The purchasing department should “market” itself to suppliers,
to obtain favourable treatment during the periods of shortages.

20. customers
Major task of business is to create and sustain customers
Different categories of consumers
Individuals
Households
Industries and other commercial establishments
Government and other institutions
Depending on single customer is too risky
Choice of customer should be done by considering
Relative profitability
dependability
stability of demand
growth prospectus
extent of competition

21. competitors
A firm’s competitors include not only the other firms which market
the same or similar product but also all those who compete for the
income of the consumers
Desire competition- companies and organisations offering a product
that the consumer desires immediately.
Generic competition- products which are all different in type but are
capable of satisfying the same basic want of the prospective
purchaser. For example, the consumer may want to buy some new
kitchen appliances but must choose between a dishwasher, a
refrigerator and a microwave oven, fevistick and gluestick
Product form competition- includes only products or services of the
same product type
Brand competition- is the competition between the companies
offering the similar products or services in the same target market in
which the companies promote and develop differentiated products
and services frequently based on brands or labels.

22. Market intermediaries
Firms that aid the company in promoting, selling and
distributing its goods to final buyers.
Include
the middlemen and merchants who “help the company find
customers or close sales with them”
Physical distribution firms which “ assist the company in stocking
and moving goods from their origin to their destinations”
Marketing service agencies which “assist the company in
targeting and promoting its products to the right markets”
Financial intermediaries which “finance marketing activities and
insure business risks”
Vital links between the company and the final consumers.

23. public
Any group that has an actual or potential interest in or impact
on an organization’s ability to achieve its interests
E.g. Media publics, citizens action publics, local publics
Media attack on any company can influence the government
decisions affecting the company.
Environmental pollution is an issue often taken up by number
of local publics
Publics are not always threat to the business.
Fruitful cooperation between a company and the local publics
may be established for the mutual benefit.

24. MACRO ENVIRONMENT
• Macro environment of business means all
external factors which affects company and its
business and there is no control of company on
these factors.

25. MACRO ENVIRONMENT
Consists of larger societal forces that affect all the actors in
company’s micro environment-namely
the demographic,
economic,
natural,
technological,
political and
cultural forces
Also known as Societal Environment
The Societal Environment includes general forces that do not directly
touch on short-run activities of the organization but that can, and
often do, influence its long-run decisions.

26. Economic Environment
Important factors are:
Economic conditions
Economic policies
Economic systems
Economic condition
The economic conditions of a country –for example, the nature of
the economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and
assets, etc.- are among the very important determinants of business
strategies.
In a developing country, the low income may be the reason for the
very low demand for the product.

27. Economic Environment
Economic policies
Some types or categories of business are favourably affected by
government policy, some adversely affected, while it is neutral to some
others.
E.g. a restrictive import policy may greatly help the import competing
industries, while a liberalisation of the import policy may create
difficulties for such industries
Economic System
The scope of the private business depends on the economic system.
The freedom of the private enterprise is the greatest in the free market
economy.

28. Political & Government
Environment
Has close relationship with the economic system and economic
policy.
In many countries regulations to protect consumer interests
have become stronger.
Some governments specify certain standards for the products
to be marketed in the country; some even prohibit the
marketing of certain products.
Promotional activities are subject to various types of controls.
Eg: In India, Advertisement of alcoholic product is prohibited.
 and the packages must carry “injurious to health” warnings

29. socio-cultural environment
Major factors are:
the buying and consumption habits of people,
their language beliefs and values,
customs and traditions,
tastes and preferences,
Education
Strategy should be appropriate in the socio-cultural
environment.
Eg: nestle brews a very large variety of instant coffee to satisfy
different national tastes

30. Even when people of different cultures use the same product;
the mode of consumption, conditions of use, purpose of use or
the perceptions of the product attributes may vary so much so
that the product attributes, method of presentation, positioning
or method of promoting the product may have to be varied to
suit the characteristics of different markets.
E.g.: Vicks Vaporub, the popular pain balm is used as mosquito
repellent in some tropical countries

31. Language difference pose a serious problem.
e.g.
In Japanese, General Motors’ “body by Fisher” means “Corpse by
fisher”
Colour
Blue: feminine and warm in Holland ; but masculine and cold in
Sweden
Green: favourite in Muslim world; but represents illness in
Malaysia
Red: popular in communist countries; but represents disaster in
Africa
White: death and mourning in China and Korea; but it expresses
happiness in some countries. Also it is the colour of bridal dress.

34. Demographic environment
Factors:
Size, growth rate, age composition, sex composition of
population, family size, educational levels, economic
stratification of the population, language, caste, religion, etc.
E.g.
Decline in birth rates in USA have affected the demand for
baby products. So Johnson &Johnson repositioned their
products like baby shampoo and baby oil, to the adult segment,
particularly to females.

35. Natural environment
Geological and ecological factors, such as natural resources
endowments, weather and climatic conditions, topographical factors,
location aspects in the global context, port facilities etc., are relevant
to business.
Differences in geographical conditions between markets may some
times call for changes in the marketing mix. Geographical and
Ecological factors also influence the location of certain industries.
E.g. industries with high material index tend to be located near the
raw material sources.
Topographical factors may affect the demand pattern
E.g.. In hilly areas with difficult terrain, jeeps may be in a greater
demand than cars.
Ecological factors have recently assumed great importance. The
depletion of natural resources, environmental pollution and the
disturbance of ecological balance have caused great concern.

36. Physical & technological
environment
Business prospects demands availability of certain physical facilities
E.g. demand for electrical appliances is affected by the extent of
electrification and the reliability of power supply.
Demand for LPG stoves depend on rate of growth of gas connections
 differing technological environment of different markets may call for
product modifications
E.g. Many appliances are designed for 110 V in USA. They should be
converted for 240v in India
Technological developments may increase or decrease the demand
for some existing products
E.g. voltage stabilizers help increase in sale of electrical appliances in
markets characterised by frequent voltage fluctuations
Introduction of TVs, Refrigerators, etc. with in-built stabilizers
adversely affects the demand for voltage stabilizers.

37. International Environment
Particularly important for the industries directly depending on
imports or exports and import-competing industries
Recession, economic boom, liberalization
Major international developments have their spread effects on
domestic business.
E.g. Oil price hikes increased the cost of production and the prices
of certain products such as fertilizers , synthetic fibres. So usually,
the demand for natural fibres and manures increased.
Also demand for automobiles that economise energy consumption
got increased.

38. The oil crisis also promoted some companies to resort to
demarketing
“demarketing” refers to the process of cutting consumer
demand for a product back to the level that can be supplied by
the firm.
E.g. The Indian Oil Corporation have publicised tips on how to
cut oil consumption

39. Significance of B.E.
• Facilitates operations of the organization.
• Form the basis of long term policies, plans and strategies of
organization.
• Help organization in identifying & understanding its
competitors.
• Help the firms to expand & grow.
• In-cashing business opportunities
• Affect internal control

40. Significance of B.E.
• Optimize scare resources
• Market relevant technology development
• Avoiding threats
• Competitors analysis, Sustainable competitive advantage
• Monitoring and forecasting
• Strategy formulation
• Power relationships and lobbying
• International trade