2. Basic Concept
Two terms- Business+ Environment
• Business means- Economic activities, like purchase, sale,
production, supply, rates, markets, damages, pilferages
• Economics - how people choose to use resources.
• Business means the whole complex field of commerce and industry ,
processing and manufacturing industries and the network of
ancillary services, distribution, banking, insurance industries ,which
serve and interpenetrate the world of business as a whole
• Environment means- The Social, Legal, Economical, Political or
Institutional that are uncontrollable in nature and affects the
functioning of organization.
• Health of Organization- Depends on Internal structures , functioning
and adaptability of same: Favourable-Un-favourable
3. Characteristics of Business
• Element of enterprise
• Dealing in exchange of goods and services
• Profit motive
• Element of risk and uncertainty
• Economic activities related to production and
distribution
• Creation of utilities
• Continuity of transactions.
4. Components of Business
Environment
Two components
• Internal
• External
– Internal:
• 5 M’s- Man, Material, Machinery, Money and
Management- Various examples
Controllable
Modifiable
– External: (Micro/Macro)
• SWOT
5. Characteristics of Business Env.
• Business environment is compound in nature.
• Business environment is constantly changing process.
• Business environment is different for different business
units.
• It has both long term and short term impact.
• Unlimited influence of external environment factors.
• It is very uncertain.
• Inter-related components.
• It includes both internal and external environment
6. BE
Internal External
Mgt structure
Stakeholders
Relationships
Physical assets
Technology resources
Human resources
Financial resources
Firm’s goals ,objectives
Value systems
Micro Economic
Inputs suppliers
Workers and unions
Customers
Market Intermediaries
Competitors and public
Macro economic
Demand/Price
Savings/Investment
Monetary Fiscal
Balance of payments situation
Overall Growth activity
Economic
-Economic system
-Financial system
Economic Policies
Economic Planning
Non-Economic
-Political-Legal
--socio-Cultural
--Natural
--Demographic
7. Internal:
• Mission, Values, Objectives
• Management Structure and Nature
• Internal Power
• HR
• Company Image and Brand Equity
• Misc.( Assets, Facilities, R&D, Marketing
Resources, Financial factors)
Internal
8. RBV( Resource Based View)
• Internal Resources are more important to
Organization than external factors in achieving
and sustaining competitive advantage.
• Organizational Performance can be grouped into
three categories-
• Physical/Tangible Resources- Plant Equipment,
Location, Tech, Raw Material
• Intangible- Brands, company Reputation,
Organizational Morale, experience,
• Organizational Resources-structure, planning
process, patents, Trade Marks, Database
Resources are actually that helps Organization to
exploit opportunities
9. External-Micro
• Micro/Operating Environment: The environment which is close to business and affects its capacity to work is
known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries,
Competitors and Public.
• (1) Suppliers: – They are the persons who supply raw material and required components to the company. They
must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier.
• (2) Customers: - Customers are regarded as the king of the market. Success of every business depends upon
the level of their customer’s satisfaction. Types of Customers:
(i) Wholesalers
(ii) Retailers
(iii) Industries
(iv) Government and Other Institutions
(v) Foreigners
• (3) Market Intermediaries: - They work as a link between business and final consumers. Types:-
(i) Middleman
(ii) Marketing Agencies
(iii) Financial Intermediaries
(An institution that acts as the middleman between investors and firms raising funds. Often referred to as
financial institutions-chartered banks, insurance companies, investment dealers, mutual funds, and
pension funds)
• (iv) fiscal Intermediaries
• A fiscal intermediary manages funds, makes payments, and accounts for expenditures made on behalf of
the consumer as directed by the consumer, family, or circle of support. The fiscal intermediary is not a
direct service provider, but handles the business end of securing services and supports.
• (4) Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to
the strategies of the Competitors.
• (5) Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local
public. They may be the users or non-users of the product.
11. External/Macro/Economic
• Economic Environment: - It is very complex
and dynamic in nature that keeps on changing
with the change in policies or political situations.
It has three elements:
(i) Economic Conditions of Public
(ii) Economic Policies of the country
(iii)Economic System
(iv) Other Economic Factors: – Infrastructural
Facilities, Banking, Insurance companies, fiscal
system, money markets, capital markets.
12. External/Macro/Non-Economic
• Political Environment: - It affects different business units extensively. Components:
(a) Political Belief of Government
(b) Political Strength of the Country
(c) Relation with other countries
(d) Defense and Military Policies
(e) Centre State Relationship in the Country
(f) Thinking Opposition Parties towards Business Unit
• (ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within
the control of business, is known as Socio-Cultural Environment. These factors include: attitude of
people to work, family system, caste system, religion, education, marriage etc.
• (iii) Technological Environment: - A systematic application of scientific knowledge to practical
task is known as technology. Everyday there has been vast changes in products, services,
lifestyles and living conditions, these changes must be analyzed by every business unit and
should adapt these changes.
• (iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port
facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look
for these factors before choosing the location for their business.
• (v) Demographic Environment :- It is a study of perspective of population i.e. its size, standard
of living, growth rate, age-sex composition, family size, income level (upper level, middle level and
lower level), education level etc. Every business unit must see these features of population and
recognize their various need and produce accordingly.
• (vi)International - It is particularly important for industries directly depending on import or
exports. The factors that affect the business are: Globalization, Liberalization, foreign business
policies, cultural exchange.
13. Global Business Environment
• Economic Environment
• Level of Economic Development
• Population
• GNP
• Per capita Income
• Literacy level
• Social Infrastructure
• Natural Resources
• Climate
• Monetory and fiscal policies
• Wage and salary levels
• Nature of competition
• Inflation
• Legal Environment
• Legal Tradition
• Effectiveness of legal system
• Treaties with foreign National
• Patents, trademarks, laws
• Political system
• Form of Govt.
• Political ideology
• Stability of Govt.
• Strength of opposition
• Govt. attitude towards foreign firms
• Foreign Policy
• Cultural Environment
• Customs
• Languages
• Motivation
• Social Institutions
• Status symbols
• Religios beliefs
14. The Broad Process
scan Interpret Decide
Internal &
External
Scenario/
Options
Strategic
Directions/
plans
15. Environmental scanning
• A component of Global Environment
scanning.
• Different part….
Environmental Monitoring
Environmental assessment
Environmental Forecasting
16. Competitive structure of
companies-For strategy formulation
Rivalry among
existing firms
SUPPLIERS
SUBSITUTES
BUYERS
POTENTIAL
ENTRANTS
BARGAINING
POWER
BARGAINING
POWER
CONSTRAINTS PRICING
ENTRY BARRIERS THREATS OF NEW
ENTRANTS
Porter’s Model of Structural analysis of
Industries
Five forces
1.Rivalry among existing firms
2.Threat of new entrants
3.Threat of substitutes
4. Bargaining Power of suppliers
5. Bargaining power of buyers
