Business Environment

The objective of the paper is to provide the student with a background of

various environment factors that have major impact on business and sharpen
their mind to watch and update the changes that occur constantly and analysis

of competitive business environment with special reference to India.

Unit I:
Business Environment and Analysis:

The concept of Business Environment, significance and nature. Overview of

Political, Socio-cultural, Legal, Technological environment: Impact of
technology on business. Technological policy, import of technology,
appropriate technology, problems in technology transfer.
Global environment. Environment Scanning: meaning, nature and scope, the
process of environmental scanning, Interaction between internal and external
environments.

Unit II:
Indian Financial System:
Current Financial Structure, Non Banking Finance Companies (NBFCs) and
Financial Institutions. Reforms of the banking sector and Financial Sector, Role
of SEBI, FEMA. The changing dimensions of these laws and their impact on
business.
Unit III:
Macro Economic policies of India:
Indian tax system, Direct and Indirect taxes. MODVAT, CENVAT and Value
Added Tax. An evaluation of recent fiscal policy of Government of India –
Highlights of Budget. Monetary Policy: RBI , Objectives of monetary and
credit policy, Policy tools and Recent trends of Monetary Policy.

Unit IV:
Micro Economic policies of India:
Public sectors reforms and disinvestment, Industrial Policy in recent years,
MRTPAct. policy, Foreign investment Policy, EXIM Policy, Flow of Capital,
Acquisition, Mergers, India and WTO.

Unit V:
LPG Liberalization, Privatization and Globalization:
New Economic Policy , Privatization, Liberalization Globalization, their
Implication for Indian Business, its Impacts and emerging trends and issues of

LPG in Indian Business

Meaning of Business
Nature of Modern Business
Environment of Business
How environment influences business:

 What is the meaning of business and how one understands the nature of modern
business?

 How is internal environment of business different from its external

environment?

 How can one distinguish micro and macro environment of business? From the
point of view of present day which is more relevant.
Business refers to buying and selling of goods……..

 Moderns business covers a complex field of industry and commerce

which involve activities related to both production and distribution.
These activities related to both production and distribution. These
activities on the one hand satisfy society’s needs and desire and on the
other hand bring profits to business firm.

 Business in brief : includes activities connected with production, trade,

transport, finance, banking, insurance, advertising and certain other
activities related to industry and commerce.
 Nature of Modern Business

 Large Scale
 Oligopolistic character
 Diversification
 Global Reach
 Technology orientation
 Change
 Government Control
Large Size
Business that matters today is large in size. Indian companies in terms of
sales revenues, profits, asset and stock holders’ equity are relatively small
as compared to the companies in develop countries.
Fortune 500 List, 2008 Indian Oil ,Tata steel ,Reliance Industries, Bharat
Petroleum, Hindustan Petroleum, State Bank Of India, ONGC

Oligopolistic Character
Oligopolistic business is characterized by a small number of firms selling a
homogeneous or a differentiated product.
Key Feature: Business interdependence among the seller.
Diversification:

Concentric diversification:
Business firms prefer to add new related products to their existing production.
Maruti Udyog
Horizontal diversification:
Adding new related products or services for existing customers. Philips
Conglomerate diversification:
Big business houses expands their activity by establishing new companies
which undertake production of unrelated new products or services. Tata Group
Ambani Group Reliance, Modi Groups
 Global Reach:
Liberalization, Technological Change & Falling trade barriers have
rapidly changed the business landscape.
Companies expanded their revenue and assets base across countries and
engages in cross –border flows of capital, goods.
Eg, Nestle, Philips Electronics.

Technology:

Japanese and Korean Companies have launched a large no. consumer

goods, including air-conditioners, washing machines, refrigerators,
televisions video cameras, dish washers and rice cooker with buzzy
controls systems.
Because modern companies regard technological research strtegic to their
future, they carry out their R & D activities very close to their head
quarters. These activities are central ised in the countryof the company’s
origin.Eg. Novartis has more than teo-thord of its R & D activity in
Switzerland.
Government Control

 Pollution
 Hazardous wastes
 Unsafe drugs and food
 Radioactive matarials
 Public Goods: Buolding highway network, education and public health and
security.
 To create stable business condition
Government Control

 Pollution
 Hazardous wastes
 Unsafe drugs and food
 Radioactive matarials
 Public Goods: Buolding highway network, education and public health and
security.
 To create stable business condition
 Transition Competition

Information Opportunities
Business

Technology Globalization
 Vision, Mission & Objectives
Vision: Why the firm exists and where it is trying to lead.

Where do we go from here?

What changes lie ahead in the business landscape?
What differences will these changes make to the company’s present business?

The Vision of Infosys is:

“To be globally respected corporation that provides best –of –breed business
solutions, leveraging technology, vendors and society at large.”
Mission:
A mission statement outline the fundamental purpose of the organization.

A vision becomes tangible as a mission statement. If the vision statement

answers the question ‘Where do we go from here?”

The mission statement answers “What is our business ? ”

A mission statement gives the organisation its own identity, business

emphasis and path for development. A mission statement incorporates four
elements:
 Customer needs, or what is being satisfied.
 Customer groups, or who is being satisfied.
 The company’s activities, technologies, and competencies, or how the firm
goes about creating and delivering value to customers and satisfying their
needs.
 The company’s concern for survival, its philosophy, its self-concept and its
concern for public image
Objective:

Objective render mission more concrete.

Mission statement seek to make a vision more specific and objectives are
attempts to make mission statement more concrete.

Objective represent the operational side of an organisation.

Objective: Power Quality Products
and
Profit Services

Growth Challenging
Business Goals

Employees
Satisfaction Joy of
And Development Creation

Market Service to
Leadership Society
Environment:
Environment means the surroundings, external objects, influences or
circumstances under which someone or something exists.

The environment of any organization is the aggregate of all conditions, events,

influences that surround and affect it.

Business – Economic activity

Business Firm – Economic Unit

Business Decision Making – Economic in Nature

 Environment of Business

 Business Environment refers to all external factors which have a direct or

indirect bearing on the activities of business.

Business Environment

External Internal
Environment Environment

Micro Environment Macro Environment

Environment of Business

External Environment

Internal Environment

Micro Value Internal

System
Business power Macro
Goals/ Relationship
Objectives Physical and
Managemen technological
t Structure Capabilities
Human Financial
&
Marketing resources
 Political-Legal

Physical Rival Firms

Economic
New Entrants
Suppliers

Cultural
Buyers

Substitute Products

Global Technological

External Environment Internal Environment

 Internal Environment

 Value System: Persons holding top positions in certain modern corporate

enterprises have some values which influence their policies, practices and overall
internal environment .
 Goals and Objectives: Sales maximization and the balanced rate of growth
maximization .
 Management Structure: A corporate enterprise may be professionally managed
or family controlled.
 Internal Power relationship: The strength of management depends largely on
the relationship between the company’s shareholders
 Physical resources and technology: Production technology R&D work and
distribution logistics.
 Human Resources: The quality of human resources of a company depends largely
on skills, commitment, attitude and morale of the employees.
Business Firm: Adaptability and adoptability to environment.

Managers: Capability to deal with environment.

Internal Business External

Environment Environment Environment

Regarded ascontrollable
Regarded as controllable Regarded as uncontrollable
factors factors factors
Internal and External business environment

Internal business environment External business environment

 Internal structure  Industry level
 System, culture  Suppliers
 Staff  Customers
 Resources of the organization  Competitors
 Marketing-distribution  Financiers
 Finance accounting  Society
 Human resources  General level
 Production-operation  Regional
 Research-development  National
 International level
 Macro Environment:
Economic Environment Non Economic Environment
 Industrial Production  Global Environment
 Agriculture
 Planning  Political Environment
 Infrastructure
 National Income  Regulatory & Legal Environment
 Per Capita Income
 Money Supply  Social / Cultural Environment
 Price Level
 Population  Demographic Environment
 Savings
 Trade cycles  Technological Environment
 Economic System
 Growth  Natural Environment
 Economic stability
 Economic policy
Technological Environment: exercises considerable influences on
business. It changes fast and to keep pace with it, businessmen should be ever
alert to adapt changed technology in their businesses.

Features:
1. Technology reaches people through business.
2. Increased productivity.
3. Need to spend on R&D.
4. Fast changing technology.
5. Rise and decline of products and organisations.
6. High expectations of consumers.
7. Demand for capital.
8. Social change
Global Environment:
Features:

Increasing opportunity as world has become one market.

 Improving quality.

 Competition from MNCs.

 Capital and technology transfers

 Deciding which market to enter and how to enter.

 Adjusting the management process

 India and WTO

A manager must understand that safe and protected markets are no more there;
the world is becoming small in size-advanced means of transport and
communication facilities; learning of foreign languages is a necessity;
facing political and legal uncertainties is inevitable; and that adapting their
products to different customer needs and tastes would only help companies
survive amidst intense competition.
 Political-Legal Environment:
refers to the influence exerted by the three political institutions, viz,
legislature, executive and the judiciary in shaping, directing, developing and
controlling business activities. Legislature decides on a particular course of
action; the executive also called the government, implements whatever was
decided by the parliament and the judiciary as the watchdog in order to ensure
that both the legislature and the executive function in the public interest and
with in the boundaries of the Constitution. A stable and dynamic political
environment is indispensable for business growth.

 Role of legislature
 Role of executive
 Role of judiciary
 Constitution of India.
 New direction for government role.
Social and Cultural Environment: refers to the influence exercised by
the certain factors which are beyond the company gate.

 Culture creates people

 Culture and globalization
 Culture determines goods and services
 People’s attitude to business and work
 Caste system
 Sprit of collectivism and individualism
 Education
 Family and marriage
 Ethics in business
 Social responsibility
 Corporate governance
Natural Environment:

 Manufacture depends on physical inputs.

 Mining and drilling depends on natural deposits
 Agriculture depends on Nature
 Trade between two regions depends on geographical factors
 Transport and communication depend on geographical factors
Determinants of International Environment for Business

 State of world economy.

 International economic cooperation.
 Role of multinational economic institution.
 International economic laws ,agreement codes.
 Political condition & system in different countries.
 Growth and speed of MNCs.
 Technology growth & transfer.
 International market structure and competition.
 Barriers of international trade & investment.
Significance of Business Environment

 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.
 Objective and uses of environment study:
Environment analysis has three basic goals:
 Analysis should provide an understanding of current and potential changes
taking place in the environment.
 Environment analysis should provide inputs for strategic decision making.
 Environment analysis should facilitate and foster strategic thinking in
organizations-typically a rich source of ideas and under standing of the context
within which a firm operates.

Strategy Strategy Evaluation and

Environment
Formulation Formulation Control
Scanning
Benefits of environment study:

 Development of broad strategies and long term policies of the firm.

 Development of action plans to deal with technological advancement.
 To foresee the impact of socio-economic changes at the national and
international levels on the firms stability.
 Analysis of competitor’s strategies and formulation of effective counter-
measures.
 To keep oneself dynamic.
Nature of Business Environment:

 Dynamic
 Uncertain
 Opportunity & Threat
 Internal & External factors
 Economic and Non Economic factors
 Types of Business Environment Risk

 Legal Risks

 Regulatory Risks

 Political Risks

 Social Risks

 Natural Risks
 Environment Scanning

Environmental scanning is a process of gathering, analyzing, and dispensing

information for tactical or strategic purposes. The environmental scanning
process entails obtaining both factual and subjective information on the
business environments in which a company is operating or considering
entering.

 Strategic planning in which manager try to determine best fit b/w

organization and its external environment.

 Important step towards corporate planning & business policy decision.

 Aimed at conditions improvement of the company, its policies &

programs.
Linkage among Stages

Monitoring

Scanning
Forecasting

Assessment
 Process of Environment Analysis :

Scanning : General surveillance of environmental factors & their interactions.

Monitoring : Tracking environmental trends events.

Forecasting: Developing plausible projections of direction, scope & intensity of

environment changes

Assessment: Identifying & evaluating how & why current and projected environment
changes will affect strategic management of organization
Internal Scanning :
Acquisition, analyses, use of information from within the organization that
will help the mngt in determining future course of action of business.

External Scanning:
Acquisition, analyses, use of information about events & establishing the
relationship of business with its environmental variables.

SWOT analysis
 Important Information :

 The size and type of sectors represented

 How many people they currently employ
 Business expansion initiatives
 Employee shortages
 Skills required
 Business growth opportunities
 Gaps in the business sector
There are three ways of scanning the business
environment:

 Ad-hoc scanning - Short term, infrequent examinations usually

initiated by a crisis

 Regular scanning - Studies done on a regular schedule (e.g.

once a year)

 Continuous scanning (also called continuous learning) -

continuous structured data collection and processing on a
broad range of environmental factors
 SWOT analysis

Strengths: attributes of the person or company that are helpful to achieving the
objective.

Weaknesses: attributes of the person or company that are harmful to achieving

the objective.

Opportunities: external conditions that are helpful to achieving the objective.

Threats: external conditions which could do damage to the objective.

List Strengths:
Develop a list of all of the internal strengths of the agency incorporating
feedback from the team members, emails and surveys. Discuss the
strengths and clarify any questions or confusion.
Examples of strengths could include an experienced staff or good employee
training program.
Identify Weaknesses

Weaknesses are internal factors that may impact workforce planning

negatively.
Examples of weaknesses could include an absence of procedural manuals or
lack of an employee mentoring program. It is possible that a strength could
also be a weakness. For
example, long-time employees could be a strength because of their experience,
but may be a weakness because it might indicate a workforce close to
retirement..
List Opportunities:

Opportunities are external factors, as opposed to the internal factors of

strengths and weaknesses. Opportunities could include new relevant training
programs at educational institutions or an emerging diverse workforce.

Identify Threats:

Threats are also external factors. Threats could have a negative impact on your
workforce planning and could include a projected increase in the cost
of employee health insurance or an expected reduction in government funding.
Again it is possible that an opportunity may also be perceived as a threat. For
example, new technology tools might be an opportunity, but also threaten
staffing levels.

Establish Priorities
 SWOT Analysis
Strengths
What does your community do
well?
What unique resources do you
have?
What do others see as your
strengths?
Opportunities
What good opportunities are
available to you?
What trends would you take
advantage of?
How can you turn your strengths
into opportunities?
Weaknesses
What could you improve?
Where do you have fewer resources than
other communities?
What do others see as your weaknesses?
Threats
What trends could affect you negatively?
What are competing communities doing?
How would a weakness be potential
threat?
Responses
 When an issue is detected, there are generally six ways of responding to
them:
 opposition strategy - try to influence the environmental forces so as to
negate their impact - this is only successful where you have some control
over the environmental variable in question
 adaptation strategy - adapt your marketing plan to the new environmental
conditions
 offensive strategy - try to turn the new influence into an advantage - quick
response can give you a competitive advantage
 redeployment strategy - redeploy your assets into another industry
 contingency strategies - determine a broad range of possible reactions -
find substitutes
 passive strategy - no response - study the situation further
 Role of Business Economists:

 To provide economic logic & perspective for managerial decision making.

 Integrating economic theory with practical business environment.

 Monitoring, scanning, careful analysis & interpretations of business

environment.

 Forecasting, future planning & formulating future business strategy.

Thank You