Business Environment and related terms

1. UNIT 2
A. Political & Governmental Environment
B. Natural & Technological Environment.
C. Demographic Environment

2. POLITICAL ENVIRONMENT
Political Environment is the state, government and its institutions and legislations and
the public and private stakeholders who operate and interact with or influence the
system. The political atmosphere should be good and very stable for a firm to operate
successfully. Political Environment forms the basis of business environment in a
country.
If the policies of government are stable and better then businesses would get
impacted in a positive way and vice versa. Changes in government often results in
changes in policy.
The political environment of business refers to the political or government actions that
impact business operations.

3. POLITICAL SYSTEM SHOULD BE
Stable
Honest
Efficient
dynamic

4. FACTORS AFFECTING POLITICAL INSTABILITY
Civil war
Declaration of emergency in the country
Changes in the form or structure of administration ofGovernment.

5. STATE AND GOVERNMENT
State, in its wider sense, refers to a set of institutions that possess the means of
legitimate coercion, exercised over a defined territory and its population referred
to as society.
The term government refers to the process of governing, to the exercise of power. It
also means the people who fill the positions of authority in a state.

6. POLITICAL INSTITUTIONS
Legislature
Executive
judiciary

7. LEGISLATURE
Most powerful institution
Role is to make the law
Powers
Policy making
Law making
Approval of budgets

8. EXECUTIVE
Referred to as government
Responsible for implementing the law
To shape, direct and control the business activities

9. JUDICIARY
Responsible for interpreting and applying law
It has to look into the exercise of authority by the executives is according to the
general rules laid down by the legislature.
To settle legal disputes that affects business considerably.
Disputes between employers and employees
Disputes between two companies
Disputes between employees
Disputes between employers and the public
Disputes between employers and the government

10. RELATIONSHIP BETWEEN BUSINESS AND
GOVERNMENT
Responsibility
Accountability
Duty

11. RESPONSIBILITIES OF BUSINESS
TOWARDS GOVERNMENT
Regularpayment of taxes
Voluntary programmes
Sponsoring social welfare programmes
Environmental preservation
Promoting education
Assistance in drought, flood etc.
Providing Feed back information
Government contracts
Providing service to the government through becoming member in advisory boards
Corporate contributions to the political activities

12. RESPONSIBILITIES OF GOVERNMENT
TOWARDS BUSINESS
Political institutions
Provision of peaceful atmosphere
Provision of a system of money and credit
Balanced development and growth
Provision of basic infrastructure
Provision of information
To assist small scale industries
Transfer of technology
Competition with private sector
Licensing and inspection
Protection from foreign competition

13. VARIOUS POLITICAL ENVIRONMENT RELATED
FACTORS & ELEMENTS
• Stability- This is one of the most important factors. The stability of political
environment is very conducive to the economy and business in general. If a
country is not stable and government keeps changing frequently, the country can
never be economically stable as well. The GDP, stock exchange index all would go
down leading to a vicious circle.
• Taxation- The taxation regime is very important when it comes to political
environment. If a government is balanced in terms of tax and budget, the
companies are motivated to produce more and grow.
• Foreign Policies- Political Environment should also balance the foreign
investments and growth in a particular country. If there is no foreign investment,
growth and technical knowledge can be issues but if there is too much foreign
investment inflow then it can lead to loss of domestic players.

14. IMPORTANCE OF POLITICAL
ENVIRONMENT
• How a government make policies and what kind of economic measures it
takes can determine the success or a failure of a business.
• Government also considers all these risks and effects because the sudden or
prolonged changes to the political environment can lead to impact on GDP
and overall economy.
• other important aspect is the foreign investment and companies in
a country.

15. NATURAL ENVIRONMENT
• Involves natural resources that are needed as inputs or that are affected by
production activities.
• Environmental concerns have grown steadily during the past two decades.
• Many companies have assumed a responsible behavior towards the
natural environment because consumers are demanding it.

16. NATURAL ENVIRONMENT
• The pollution levels are a major concern as well as the damage
caused to the ozone layer, the extinction of the species and the
renewal of resources.
• Aspects take into account:
– Shortages of raw materials.
– Increased cost of energy.
– Increased pollution.
– Government intervention in natural resource
management.

17. NATURAL ENVIRONMENT
• Water scarcity is a problem for many countries.
• Renewable resources, such as forests and food, have
to be used wisely Reforestation.
• More of the world’s limited farmable land is being
developed for urban areas.
• Non-renewable resources, such as oil, coal and
various minerals, pose a serious problem.

18. NATURAL ENVIRONMENT
• The price of the renewable resources is higher every day.
• The search for other sources of energy is a priority nowadays.
• Contamination is being battled.
• Recycling, the adequate disposal of waste, among others is not only a
responsibility of companies but it represents an opportunity

19. TECHNOLOGICAL ENVIRONMENT
• Forces that create new technologies, creating new product and
market opportunities.
• Technology has released wonders and horrors.
• The following technological trends must be taken into
consideration:
– Fast pace of technological change.
– Research & Development
– Concentration on minor improvements.
– Increased regulation.

20. • Scientist today are working on a wide range of new technologies
that will revolutionize products and their manufacturing
processes.
• Biotechnology, miniature electronics, robotics, and materials
science.
• Investment on Research & Development is higher every time 
governments and private companies.
• Many companies are making minor product improvements instead of
gambling on major innovations

21. DEMOGRAPHIC ENVIORNMENT
• Demography:- Is the study of human populations in terms of
size, density, location, age, gender, race occupation, and other
statistics.
• Demography is very important because it involves people,
and people make up markets.
• The word population is growing at an explosive rate. This
population explosion has been of major concern to
governments and various groups.

22. • The explosive world population growth has major
implications for business due to
growing human needs to satisfy.
growing market opportunities.
• It is good to keep close track of demographic trends
and developments in their markets, both at home and
abroad.

23. DEMOGRAP HIC BASESOF MARKET
SEGMENTATION
• Age structure
• Gender
• Income
distribution
• Family size
• Family life cycle
• Occupation
• Education
• Social class
• Religion
• Language

24. DEMOGRAPHIC ENVIRONMENT
• Relevant variables:
– Changes in age structure.
– Changes in family structure.
– Geographic population shifts  Migration.
– Educational characteristics.
– Population diversity