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Business Environment
Learning Objective
 What is Business
 What is Environment
 Business Environment- Nature, Objective
 Types of Business Environment
 Interaction between Internal and External
Environment
 Importance of Business Environment
What is Business?
• It is a continuous production and
distribution of goods and services with
the aim of earning profits under
uncertain market conditions.
• It is a form of regular activity conducted
with an objective of earning profits for
the benefit of those on whose behalf the
activity is conducted.
Nature of Business
 An activity to earn profit by providing
goods/services
 No limit of partners (can be 1 or 10,000)
 Main purpose should be earning i.e.
economic activity
Economic/Non-Economic Activity
 An activity is said to be economic, if the
purpose is to earn profit not social service.
– e.g.
• Running a restaurant: Economic Activity
• House wife cooking : Non-Economic
1.Exchange of goods and
services
2.Deals in numerous
transactions
3.Profit is the main Objective
4.Business skills for economic
success
5.Risks and Uncertainties
6.Buyer and Seller
7.Connected with production
8.Marketing and Distribution of
goods
9.Deals in goods and
services Consumer
goods Producer goods
10.ToSatisfy human wants
11.Social obligations
Features/Characteristics of Business
Objectives of Business
1. Profit
2. Growth
3. Customer Satisfaction
4. Employee Satisfaction
5. Quality products and services
6. Market Leadership
7. Employment creation
8. Service to Society…..
What is Business Environment?
It consists of all those factors that have
bearing on the business…..
A set of conditions – Social, Legal,
Economical, Political or Institutional that are
uncontrollable in nature and affects the
functioning of organization.
 Business:
Business is a human activity carried out by
the unified efforts of different categories of people, to
produce the wealth through production and distribution of
the goods and services.
According to Malvin Anshen :
“ Business is the way by which men make
their living.”
According to Bayard O’Wheeler :
“ Business is an institution organized and
operated to provide goods and services to society under
the incentive of private gain.”
 Environment:
The birth, growth and continuous
development of organization are influenced by a wide
range of variables like employees, customers, suppliers,
producers, competition etc.
 BusinessEnvironment:
Business Environment refers to those aspects
of the surroundings of business enterprise, which affect
or influence its operations and determine its
effectiveness.
According to Keith Davis:
“Business environment is the aggregate of all
conditions, events and influence that surrounds and
affects it”
Characteristics
• Business environment is compound in nature.
• It is constantly changing process.
• It 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.
Uncertainty
Complex
Relativity
Dynamic
CHARACTERISTICS / NATURE OFBUSINESS
ENVIRONMENT
Nature of Business Environment

Complex:
Environment consists of a number of factors, events, conditions
arising from different sources which impact business thus making the
business complex.
 Interdependence :
Factors affecting business environment like social, economic, legal,
cultural etc are inter dependent.
E.g. A rich country can make sufficient expenditure on the research and
development.

Dynamic:
Business environment is dynamic as it keeps on changing in terms of
technological improvement, changes in consumer preferences, entry of
new competitors.
 Uncertainty:
Business environment is largely uncertain as it is very difficult to
predict future happenings.
 Relativity:
Business environment is a relative concept as it differs from
country to country and region to region.
e.g. Demand of saree is high in India comparative to other countries.
 Specific and General forces:
Specific forces affects individual enterprises directly and
immediately whereas general forces have impact on all business
enterprises.
 Forecasting is not possible for all developments:
Many developments such as interest rate fluctuations, the rate of
inflation etc are difficult to predict on long term basis which makes
difficult to maintain business environment.
Objectives of Business Environment
 Knowledge of Information:
Every businessman should be aware about the current
environment of the business to change accordingly.
 Basis of Decision:
It contains all the information which is needed for taking good
decision.
e.g. If a business knows about its competitors, suppliers and customers
they take decision about price, purchase, salary etc.
 Helpful in making policies:
For making good business policies one needs to know and scan
business through business environment.
 Technological Planning:
In today's environment it is really important for the business
houses to keep themselves changing according to the technological
changes in the market.
 Survive in the business:
Sometimes industry may face recession. In such condition only
those business will survive who estimate this entire situation in
advance through business environment study.
Significance of Business Environment
 First Mover Advantage:
Awareness of environment helps an enterprise to take advantage of early
opportunities instead of loosing them to competitors.
E.g. Maruti Udyog became leader in small car
 Early Warning Signal:
Environmental awareness serves as an early warning signal. It makes a
firm aware of the future threats or crisis so that the firm can take timely
action to minimize the adverse effects.
 Customer Focus:
Environmental understanding makes the management sensitive to the
changing needs and expectations of the consumers.
E.g. Apps in mobile
 Strategy Formulation:
Environmental monitoring provides relevant information about the
business opportunities on the basis of which firms makes their
strategies.
e.g. ITC in travel and tourism sector
 Public Image:
A business firm can improve its image by showing that it is sensitive
to its environment and responsive as per the need of customers.
 Continuous Learning:
Environmental analysis serves as broad and ongoing education for
business executive so that they can react in an appropriate manner to
the changing scenario and therby increase the success of their
organization.
Types of Business Environment
Internal Environment External Environment
•
•
•
Financial Resources
Physical and human
Resources
• Objectives of Business
• Work Environment
• Corporate Image
• Labour management
Relationship
• R & D
Micro Environment Macro Environment
Internal Environment:
Internal environment refers to factors existing within a business firm.These
factors are generally regarded as controllable factors because the
company has control over these factors.
 Financial Factors:
Factors like financial policies, financial procedures and capital structure
are also important internal environment affecting business performance,
strategies and decisions.
 Physical and Human Resources:
The characteristics of the human resources like skill, quality, moral,
commitment etc., contribute to the strength and weakness of an
organization.
 Objectives of Business:
The business domain of the company, direction of development,
business policy etc., are guided by the objectives of the company
 Work Environment:
The organisational structure, company policies, extent of
professionalism in management etc., are important factors influencing
business decisions.
 Company Image and Brand:
The image of the company matters while raising finance, forming
joint ventures, entering purchase or sales contract etc.
 Labour Management Relationship:
Factors like the amount of support top management enjoys from
different level of employees, and other participants influences company
decisions and their implementations.
 R&D and Technological Capabilities:
It determines a company’s ability to innovate and compete.
 ExternalEnvironment
The external environment refers to the factors existing outside the
business firm. The external factors are beyond the control of a
company, hence its success depends to the adaptability of the
environment.
Again external environment is divided in two parts:
1)Micro Environment / Specific Environment
2)Macro Environment / General Environment
COMPONENTS
of
SPECIFIC
or
TASK
ENVIRONMENT
Customers
Suppliers
Competitors
Government
Financial Institutions
StrategicAllies
 MicroEnvironment


The factors which are close to the company and affects its ability to work
constitutes micro environment. It is known as the operating environment
of business.
When competing form in the industry have the same micro elements,
the success of the firm depends on their relative effectiveness in dealing
with these elements.
Suppliers:
Suppliers are those who supply the inputs like raw material and
components to the company. Uncertainties regarding the supply
constraints the company to maintain high inventories causing cost
increase.
Customers:
Success of any business depends upon identifying customers, their
needs, likes etc., and enhancing the level of customer satisfaction. The
major task of a business is to create and sustain customers.
 Competitors:
Competitors means other business units which are marketing or
producing similar products or a very close substitute of our product.
Business has to adjust its various activities according to the action and
reactions of competitors.
 Marketing Intermediaries:
These are the firms that aid the company in promoting , selling and
distributing its goods to final buyers. They are the vital links between the
company and the final consumers.
Public:
A public is any group that has an actual or potential interest in or impact
on an organization's ability to achieve its interest. Some companies are
seriously affected by such public.
E.g. Media
Political
Environment
Economic
Environment
Technological
Environment
Socio-
Cultural
Environment
Macro Environment
Macro environment means general environment of business. Macro
forces are uncontrollable in comparison to the micro forces of
environment. The growth and survival of business depends upon its
adaptability to macro environmental factors.
The important macro environment are:
1)Economic Environment
2) Non Economic Environment
 Economic Environment:
To know the economic environment of a country or a business one has
to understand the economic policies of the nation. These policies put
direct impact on the working and success of the business. Economic
conditions, economic policies (Industrial policies, monetary and fiscal
policy etc) and the economic system are the important factors that
constitute economic environment of the business.
 Refers to all factors, which give shape and form to the
development of economic activities.
 Consists of interest rates, inflation,
fluctuation, etc.
Components:
Economic system
Economic policies
Economic conditions
Capital market
Globalization
 Includes the total social forces within which the
organization operates.
 Involves traditions, social values, beliefs, norms,
Lifestyle
Social Values
Social Institutions
Religion
Language
attitudes custom and demographic composition.
Components :
Demography
Non Economic Environment
 Refers to the systematic application of knowledge
essential to do things
 Focuses on machines and equipment, transmission of
information, new techniques and processes, etc.
Components:
Nature of Technology
Pace of technological change
Technology Transfer
Research and development Budget
 Refers to government regulations and the legal
system for business.
Components :
Constitution
Political philosophy
Political Parties
Political institutions
Legal institutions
 Non Economic Environment
 Socio cultural Environment:
The socio-cultural environmental factors consist of human relationship
and the development. Some of the important factors in the social
environment are the buying and consumption habit of people, their
languages, beliefs and values, custom and traditions, etc that effeccts
the business.
 Legal Environment:
Every country follows its own system of law. The companies operatiing
in the global market have to take into account the provisions with rspect
to the legal environment prevalent in the countries which thy do
business. These law and regulations affect the day-to-day operations of
business.
 International Environment:
The international environment is particularly important for industries
directly depending on imports or exports.
E.g. Import export policies of various countries.
 Political Environment:
The political environment consists of factors related to the management of
public affairs that have a considerable impact on the business of an
organization. It impacts the legislations and government rules and
regulations under which business organizations operates in a country.
 Technological Environment:
Technological environment comprises both machines (hard technology)
and scientific thinking (soft technology) used to solve problems and
promote progress. It also represents the degree of advancement of goods
and services that are prevalent in a country or a region.
 Natural Environment:
Geographical factors such as natural resources endowments, weather and
climatic conditions, location aspects in the global context, port facilities
etc., are all relevant to business.

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business environment micro environment macro environment.pptx

  • 2. Learning Objective  What is Business  What is Environment  Business Environment- Nature, Objective  Types of Business Environment  Interaction between Internal and External Environment  Importance of Business Environment
  • 3. What is Business? • It is a continuous production and distribution of goods and services with the aim of earning profits under uncertain market conditions. • It is a form of regular activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted.
  • 4. Nature of Business  An activity to earn profit by providing goods/services  No limit of partners (can be 1 or 10,000)  Main purpose should be earning i.e. economic activity
  • 5. Economic/Non-Economic Activity  An activity is said to be economic, if the purpose is to earn profit not social service. – e.g. • Running a restaurant: Economic Activity • House wife cooking : Non-Economic
  • 6. 1.Exchange of goods and services 2.Deals in numerous transactions 3.Profit is the main Objective 4.Business skills for economic success 5.Risks and Uncertainties 6.Buyer and Seller 7.Connected with production 8.Marketing and Distribution of goods 9.Deals in goods and services Consumer goods Producer goods 10.ToSatisfy human wants 11.Social obligations Features/Characteristics of Business
  • 7. Objectives of Business 1. Profit 2. Growth 3. Customer Satisfaction 4. Employee Satisfaction 5. Quality products and services 6. Market Leadership 7. Employment creation 8. Service to Society…..
  • 8. What is Business Environment? It consists of all those factors that have bearing on the business….. A set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of organization.
  • 9.  Business: Business is a human activity carried out by the unified efforts of different categories of people, to produce the wealth through production and distribution of the goods and services. According to Malvin Anshen : “ Business is the way by which men make their living.” According to Bayard O’Wheeler : “ Business is an institution organized and operated to provide goods and services to society under the incentive of private gain.”
  • 10.  Environment: The birth, growth and continuous development of organization are influenced by a wide range of variables like employees, customers, suppliers, producers, competition etc.
  • 11.  BusinessEnvironment: Business Environment refers to those aspects of the surroundings of business enterprise, which affect or influence its operations and determine its effectiveness. According to Keith Davis: “Business environment is the aggregate of all conditions, events and influence that surrounds and affects it”
  • 12. Characteristics • Business environment is compound in nature. • It is constantly changing process. • It 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.
  • 14. Nature of Business Environment  Complex: Environment consists of a number of factors, events, conditions arising from different sources which impact business thus making the business complex.  Interdependence : Factors affecting business environment like social, economic, legal, cultural etc are inter dependent. E.g. A rich country can make sufficient expenditure on the research and development.  Dynamic: Business environment is dynamic as it keeps on changing in terms of technological improvement, changes in consumer preferences, entry of new competitors.
  • 15.  Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings.  Relativity: Business environment is a relative concept as it differs from country to country and region to region. e.g. Demand of saree is high in India comparative to other countries.  Specific and General forces: Specific forces affects individual enterprises directly and immediately whereas general forces have impact on all business enterprises.  Forecasting is not possible for all developments: Many developments such as interest rate fluctuations, the rate of inflation etc are difficult to predict on long term basis which makes difficult to maintain business environment.
  • 16. Objectives of Business Environment  Knowledge of Information: Every businessman should be aware about the current environment of the business to change accordingly.  Basis of Decision: It contains all the information which is needed for taking good decision. e.g. If a business knows about its competitors, suppliers and customers they take decision about price, purchase, salary etc.  Helpful in making policies: For making good business policies one needs to know and scan business through business environment.
  • 17.  Technological Planning: In today's environment it is really important for the business houses to keep themselves changing according to the technological changes in the market.  Survive in the business: Sometimes industry may face recession. In such condition only those business will survive who estimate this entire situation in advance through business environment study.
  • 18. Significance of Business Environment  First Mover Advantage: Awareness of environment helps an enterprise to take advantage of early opportunities instead of loosing them to competitors. E.g. Maruti Udyog became leader in small car  Early Warning Signal: Environmental awareness serves as an early warning signal. It makes a firm aware of the future threats or crisis so that the firm can take timely action to minimize the adverse effects.  Customer Focus: Environmental understanding makes the management sensitive to the changing needs and expectations of the consumers. E.g. Apps in mobile
  • 19.  Strategy Formulation: Environmental monitoring provides relevant information about the business opportunities on the basis of which firms makes their strategies. e.g. ITC in travel and tourism sector  Public Image: A business firm can improve its image by showing that it is sensitive to its environment and responsive as per the need of customers.  Continuous Learning: Environmental analysis serves as broad and ongoing education for business executive so that they can react in an appropriate manner to the changing scenario and therby increase the success of their organization.
  • 20. Types of Business Environment Internal Environment External Environment • • • Financial Resources Physical and human Resources • Objectives of Business • Work Environment • Corporate Image • Labour management Relationship • R & D Micro Environment Macro Environment
  • 21. Internal Environment: Internal environment refers to factors existing within a business firm.These factors are generally regarded as controllable factors because the company has control over these factors.  Financial Factors: Factors like financial policies, financial procedures and capital structure are also important internal environment affecting business performance, strategies and decisions.  Physical and Human Resources: The characteristics of the human resources like skill, quality, moral, commitment etc., contribute to the strength and weakness of an organization.  Objectives of Business: The business domain of the company, direction of development, business policy etc., are guided by the objectives of the company
  • 22.  Work Environment: The organisational structure, company policies, extent of professionalism in management etc., are important factors influencing business decisions.  Company Image and Brand: The image of the company matters while raising finance, forming joint ventures, entering purchase or sales contract etc.  Labour Management Relationship: Factors like the amount of support top management enjoys from different level of employees, and other participants influences company decisions and their implementations.  R&D and Technological Capabilities: It determines a company’s ability to innovate and compete.
  • 23.  ExternalEnvironment The external environment refers to the factors existing outside the business firm. The external factors are beyond the control of a company, hence its success depends to the adaptability of the environment. Again external environment is divided in two parts: 1)Micro Environment / Specific Environment 2)Macro Environment / General Environment
  • 25.  MicroEnvironment   The factors which are close to the company and affects its ability to work constitutes micro environment. It is known as the operating environment of business. When competing form in the industry have the same micro elements, the success of the firm depends on their relative effectiveness in dealing with these elements. Suppliers: Suppliers are those who supply the inputs like raw material and components to the company. Uncertainties regarding the supply constraints the company to maintain high inventories causing cost increase. Customers: Success of any business depends upon identifying customers, their needs, likes etc., and enhancing the level of customer satisfaction. The major task of a business is to create and sustain customers.
  • 26.  Competitors: Competitors means other business units which are marketing or producing similar products or a very close substitute of our product. Business has to adjust its various activities according to the action and reactions of competitors.  Marketing Intermediaries: These are the firms that aid the company in promoting , selling and distributing its goods to final buyers. They are the vital links between the company and the final consumers. Public: A public is any group that has an actual or potential interest in or impact on an organization's ability to achieve its interest. Some companies are seriously affected by such public. E.g. Media
  • 28. Macro Environment Macro environment means general environment of business. Macro forces are uncontrollable in comparison to the micro forces of environment. The growth and survival of business depends upon its adaptability to macro environmental factors. The important macro environment are: 1)Economic Environment 2) Non Economic Environment  Economic Environment: To know the economic environment of a country or a business one has to understand the economic policies of the nation. These policies put direct impact on the working and success of the business. Economic conditions, economic policies (Industrial policies, monetary and fiscal policy etc) and the economic system are the important factors that constitute economic environment of the business.
  • 29.  Refers to all factors, which give shape and form to the development of economic activities.  Consists of interest rates, inflation, fluctuation, etc. Components: Economic system Economic policies Economic conditions Capital market Globalization
  • 30.  Includes the total social forces within which the organization operates.  Involves traditions, social values, beliefs, norms, Lifestyle Social Values Social Institutions Religion Language attitudes custom and demographic composition. Components : Demography Non Economic Environment
  • 31.  Refers to the systematic application of knowledge essential to do things  Focuses on machines and equipment, transmission of information, new techniques and processes, etc. Components: Nature of Technology Pace of technological change Technology Transfer Research and development Budget
  • 32.  Refers to government regulations and the legal system for business. Components : Constitution Political philosophy Political Parties Political institutions Legal institutions
  • 33.  Non Economic Environment  Socio cultural Environment: The socio-cultural environmental factors consist of human relationship and the development. Some of the important factors in the social environment are the buying and consumption habit of people, their languages, beliefs and values, custom and traditions, etc that effeccts the business.  Legal Environment: Every country follows its own system of law. The companies operatiing in the global market have to take into account the provisions with rspect to the legal environment prevalent in the countries which thy do business. These law and regulations affect the day-to-day operations of business.  International Environment: The international environment is particularly important for industries directly depending on imports or exports. E.g. Import export policies of various countries.
  • 34.  Political Environment: The political environment consists of factors related to the management of public affairs that have a considerable impact on the business of an organization. It impacts the legislations and government rules and regulations under which business organizations operates in a country.  Technological Environment: Technological environment comprises both machines (hard technology) and scientific thinking (soft technology) used to solve problems and promote progress. It also represents the degree of advancement of goods and services that are prevalent in a country or a region.  Natural Environment: Geographical factors such as natural resources endowments, weather and climatic conditions, location aspects in the global context, port facilities etc., are all relevant to business.