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Chapter 1 http://bit.ly/edu91app
Business Environment
Blue Print for Chapter 1
1. Business
2. Profit
3. Objectives of Business (Homework topic)
a. Survival
b. Stability
c. Growth
d. Efficiency
e. Profitability
4. Environment
5. Problems is understanding environmental influence
6. Framework to understand environmental influence
7. Characteristics of Business environment
a. Complex
b. Dynamic
c. Multifaceted
d. A- Far Reaching Impact
8. Relationship between organization and its environment.
9. Environmental scanning
10. Micro & Macro environment
11. Components of micro environment
a. Customer
b. Competitors
c. Organization
d. Market
e. Supplier
f. Intermediaries
12. Elements of Macro Environment
a. Demographic Environment
i. Population size
ii. Geographic
iii. Ethnic Mix
iv. Income Distribution
b. Economic Environment. (Homework topic)
c. Political –Legal Environment.
i. Government
ii. Legal Political
iii. Political.
d. Socio-Cultural environment. (Homework topic)
e. Technological.
f. Global.
i. Nature of globalization
ii. Why do companies go global?
iii. manifestation of globalization
13. Pestle Analysis
Business
Profit
"Profit may not be a universal objective but business efficiency is definitely an objective common to all business". T/F with reason.
Correct: It is generally asserted that business enterprises are primarily motivated by the objective of profit. Organizations pursue multiple objectives
rather than a single objective in which business efficiency is a very useful operational objective. Many organizations, particularly charitable and non-
government do not aim for making profits. But in general, all organizations aim for optimum utilization of resources and economy in operational
costs.
Multiple Objectives
1. Survival http://bit.ly/edu91app
) Basic& Implicit
) Important during initial stages & economic slowdowns.
) It depends on
¾ Nature of business.
¾ Nature of ownership.
¾ Abilities of management.
¾ Financial Strength of enterprise.
2. Stability
) Cautious & Conservative objective.
) Least resistance in a hostile environment leads to stability.
) It minimises the risk of management failure.
) It promotes smooth workflow & better efficiency.
3. Growth
) Popular Objective.
) It is associated with dynamism.
) Forms of growth.
¾ Increase in Assets.
¾ Increase in revenue.
¾ New Products.
¾ Increment in profit levels.
¾ Mergers &Acquisition.
) May take to unknown and risky paths.
4. Efficiency
) Rationally choosing
) Optimum utilisation of available resources. (Carrying out production at minimum cost.)
) An enterprise should be efficient in selecting the means to achieve their goals.
) Operational objective.
5. Profitability
Write the points explained in the topic profit. And also write the following line
Profit is equated with degree of business efficiency and managerial competence.
♥ How would you analyze the meaning and importance of Efficiency and Profitability as objectives
of business?
Business Environment
Environment
A business, even if it continually remains passive to the relevant changes in the environment, would still grow and flourish.
Incorrect: Businesses function within a whole gamut of relevant environment and have to negotiate their way through it. A successful business has
to identify appraise and respond to various opportunities and threats in its environment. The extent to which the business thrives depends upon the
manner in which it interacts with environmental situations or constraints. A business remaining passive to changes in its environment is destined to
gradually fade away into oblivion.
Environmental constituents exist in isolation and do not interact with each other. T/F
Incorrect: Environmental constituents such as economic, legal, society, technology and other macro and micro elements are interwoven through
complex and haphazard linkages. These constituents comprise of multitude of forces that are inter-related and inter-dependent. They are termed as
environment as they are outside the main periphery of business but may affect its functioning directly or indirectly.
There is both opportunity and challenge in changes happening in environment. T/F with reason.
Correct: It is said that change is inevitable, especially in the context of business environment. Changes in the business environment from time to time
throw up new issues before businesses. A right perspective of such new issues is to view them both as challenges and opportunities - challenge
because appropriate action is called for and. opportunity because it opens up new potentials for the future plans that would lead to prosperous
business.
The basic objective of a business enterprise is to monitor the environment. T/F with reason.
Incorrect: Monitoring environment is ancillary to basic objectives of a business enterprise. It is imperative for organisations to create and retain
customers. Organizational objectives may include survival, stability, growth, profitability and like. Organisations monitor the changes in the
environment, analyze their impact on their own goals and activities and translate their assessment in terms of specific strategies for survival, stability
and strength.
In spite of problems in understanding the business environment, organisation cannot ignore it. Understanding of
environment is very important task.
Relate with
latest trends
Analyse the
results
Characteristics of
Business Environment
Environment is
collection of many General meaning of shape & character of
factors,events,condit the term "dynamic" is Growth &
business env. depends Profitability of an
ions & information. constantly changing on Perception of organisation depends
observer upon it's environment
These are easy to
understand in parts
but difficult to grasp Dynamism in business
A particular change, Change in
in totality environment
facilitates continuous new dev. viewed environment may
differently. effect a business in
change in it's shape &
several way
These donot exist in character. It may be seen as a
isolation, keep threat for a co. it can
interacting among be opp. for the other.
themselves to create
new influences.
Exchange of
Envrionmental Scanning
Environment scanning/monitoring/analysis
Through EA Strategist will get time to anticipate opportunity & Threats & Managerial decision will be better.
→ A lot of changes are occurring within India and across the globe affecting the business. Students should list out different elements
of macro environment and discuss the contemporary developments in each of the area. They may develop their answers to cover
different elements of environment.
→ For example in the economic environment, students may briefly list out the impact of the global recession on the Indian Business.
→ They may list different factors such as difficulty in financing through primary market, inflation, low demand in certain sectors such
as real estate etc.
→ As far as social environment is concerned a new culture is evolving in the country on account of increased global interaction and
impact of mass media.
→ There is also increase in awareness. The developments in the legal environment including introduction of new direct tax code,
limited liability partnership, GST, etc. have their own bearing on the business.
Micro/Macro
Environment
Business Env. consists
Why micro/macro?
of
Micro Macro Cope up with Understand
Env. Env. complexity env. as a whole
better
forces that Forces that distantly
are close to effect org.
org
Nature-External,
Nature- Internal, uncontrollable
controllable http://bit.ly/edu91app
Affect- Long term goals
and strategies
Affect- Day to
day In Includes - (Mention the macro
operations environment variables here)
In Includes - (Mention
the variables here)
The business environment consists of both the macro environment and the micro environment. Following are the differences between the two:
The micro environment refers to the forces that are very close to the company and affect its ability to do routine functions. Macro environment
refers to all forces that are part of the larger periphery and distantly affect organization and micro environment.
Micro environment includes the company itself, its suppliers, marketing intermediaries, customer markets and competitors. Whereas macro
environment includes demography, economy, natural forces, technology, politics, legal and socio-cultural.
The elements of micro environment are specific to the said business and affects it's working on short term basis. The elements of macro environment
are general environment and affect the working of all the firms in an industry.
Micro environment is also known as task environment and affects business and marketing in the daily operating level.
Organisation have to analyse and monitor all the elements micro environment in order to stay competitive
1. Customers
x Customer are the people who pay consideration to buy the goods and services of the organisation.
x Organisation cannot survive without customers.
x A consumer occupies the central position in the marketing environment.
x The marketer has to closely monitor and analyse the changes in the consumer tastes and preferences
and their buying habits.
x A business must study
o Who are the customers,
o What benefits they are looking for.
o What are their buying patterns?
2. Competitors
x They are the other business entities and compete for resources as well as markets.
x Following are the few major questions that may be addressed for analysing competition.
x Who are the competitors?
x Their product & service.
x Market share
x Financial positions.
x Cost and price advantage.
x What will be there next move?
x Potential competitors.
3. Organisation
x Organisation consist of individuals they come from outside they have varied interest.
x In micro environment organisation must understand itself first and it is very important also.
x Organisation must know it’s SWOT
x Organisation consist of specific group which influence it these are
o Owners (Having stake in org.)
o Board of directors (General management Æ Ensure smooth & efficient running of
organisation)
o Employees (work in organisation)
Organisation & Employee should have same value. Their goals must coincide. Employees
of an organisation differ in many terms like education etc. All the employees must
work in a unified direction.
4. Market (Also Refer Points as discussed in C3 Industry & Competitive analyses – Dominant
Economic features)
x Studied in terms of potential size, growth and its attractiveness
x One should study Key success factors of the market in which they are operating.
x Important issues: Cost Structure, Price Sensitivity, Technological structure, Distribution system,
market maturity.
5. Suppliers
x Providers of materials, equipment, services.
6. Intermediaries
x They have a considerable influence on the business organisation.
x In many cases consumers are not aware of the manufacturers of the product they are buying.
x Big intermediaries are becoming popular
x Link between customer & supplier
3. Impact of technology leading to work from home. (may impact recruiting &
managing people)
iii. Ethnic Mix (Characteristics of group of people sharing common culture)
1. Ethnic means cultural or culture.
2. In an organisation people are coming from different ethnic background.
3. Dual Impact: Company’s workforce & Customers.
4. Organisation have to determine the impact of change in ethnic mix on
product design and delivery.
5. Organisation shall consider Modifying the existing or introduce new
product and service.
6. Organisation nowadays have more culturally diverse workforce.
7. They should learn Ways to take advantage of increased workforce
heterogeneity.
Economic Environment.
x Partly general to all similar enterprises & partly specific to individual enterprise.
x Level of politics, its morality, law and order situation, political stability, government policies and
enactments. Such factors can be of interest to businessmen and can impact on product & services.
i. Government
1. Policies. (business oriented or otherwise)
2. Type of government. (growth oriented or otherwise)
ii. Legal (Business Org. operates in countries where there is a sound legal system)
1. Good knowledge of major laws (consumer, competition, IPR, Forex & labour)
2. Consider changes in the regulatory framework (taxes, duties) and its impact on
business
iii. Political.
1. Political pressure groups influence and limit organisation.
2. There may be political movements against products and organisations.
3. Impact of special interest group shall also be considered. (Human right
commission etc.)
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Can a change in the elected government affect the business environment? Explain
x The type of government running a country is a powerful influence on business.
x Businesses are highly guided and influenced by government actions.
x Change in the elected government relates to the change in political environment.
x To an extent, even legal environment may change with the changes in the Government.
x It has a strong bearing on the conduct of business as it leads to significant changes in the economic policies and the regulatory framework.
x It generally reflects the political ideology of the political party or alliances.
x The government's policy of promoting select sectors further impacts the functioning of business organizations.
x Businesses are affected by the factors such as political stability, the political ideology and practices of the ruling party, the purposefulness and
efficiency of governmental agencies, the extent and nature of governmental intervention in the economy and the industry, Government policies
(fiscal, monetary, industrial, labor and export-import policies), specific legal enactments and framework and so on.
Socio-Cultural environment
Socio-cultural environment consists of factors related to government and politics. T/F with reason.
x Technology has changed the way people communicate, travel, and do business
x Technology and business are highly inter-related and interdependent.
x Dual impact of new business opportunities and making obsolete many existing systems. (act as both
opportunity & threat)
x Risk and uncertainty of technological developments & Role of R&D in a country and government’s outlook towards
R&D is also to be considered
x Technology not only affects the product but the whole business. (From Acquisition of raw material to
providing after sales services)
x Other Factors to be considered.
i. Technology required by the enterprise. ( वितनीजरुरतहै )
ii. Technology used by the enterprise (वितनीहै )
iii. Additional technology required (वितनीऔरजरुरतहै )
iv. Sources of technology. (िहााँ सेआएगी)
v. Role of technology.(क्यािरवाये गी)
vi. Investment in technology. (वितनेलगवाये गी)
Explain how technological factors present an opportunity as well as threat to a particular business organization.
Global Environment
Global
Environment
Formation of
regional blocks Rise of service
sector
Strategic approaches
International economic dynamics accompanied by geographical changes have changed the paradigm of global business. A firm I company which
wishes to go global will be guided by the following types of strategies:
Multi-domestic strategy
A multi-domestic strategy focuses on competition within each country in which the firm operates. This Strategy is adopted when a company tries to
achieve a high level of local responsiveness by matching their products and services offerings to national conditions prevailing in the countries they
operate in. The organization attempts to extensively customize their products and services according to the local conditions of different countries.
Global strategy:
A global strategy assumes more standardization of products across country boundaries. Under this strategy, the company tries to focus on a low cost
structure by leveraging their expertise in providing certain products and services and concentrating the production of these standard products and
services at a few favorable locations around the world. Competitive strategy is centralized and controlled by the home office.
Transnational strategy:
Many large multinational firms, particularly those with many diverse products, may use a multi-domestic strategy with some product lines and a
global strategy with others. A transnational strategy seeks to combine aspects of both multi- domestic and global strategies. Thus there is emphasizes
on both local responsiveness and global integration and coordination. Although the transnational strategy is difficult to implement, environmental
trends are causing multinational firms to consider the needs for both global efficiencies and local responsiveness.
Manner in which firm will commence international operations (It is one of the important decision)
• Expansion into foreign markets can be achieved through following options:
• Exporting.
• Licensing/ Franchising.
• Joint Venture.
• Foreign Direct Investment
Pestle Analysis
PESTLE Analysis
The term PESTLE analysis is used to describe a framework for analyzing the micro- environmental factors. T/F with reason.
Incorrect: The term PESTLE Analysis is used to describe a framework for analysis of macro environmental factors. It involves identification of political,
economic, socio- cultural, technological, legal and environmental influences on an organization and providing a way of scanning the environmental
influences that have affected or are likely to affect an organization or its policy. The advantage of this tool is that it encourages management into
proactive and structured thinking in its decision making.
1. Least Resistance
Competitive Environment
Following things should be considered to understand the nature and extent of competition.
x Who are the competitors?
x Their product & service.
x Market share
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x Financial positions.
x Cost and price advantage.
x What will be there next move?
x Potential competitors.
Additional Points
1. Competitive pressure varies from industry to industry
2. Competitive process of all the industry is more or less alike.
Instead of fighting with each other, business groups work with other. Businesses cooperate with each other in order
to maximize the profit and minimize the cost. In times of competition cooperation becomes very important.
1. Cartelization
2. Kieretsus
3. Family owned business cooperation
Cartelization
Cartelisation
Arrangements Aims at
Same condition as
Organisations dealing OLIGOLPOLY
in the same product or Example OPEC
Tacit( unknown Safeguarding
service or sometimes which is collective Explicit( known Stabilising the
to public) their interest
even in different group of countries to public) market price &
individually or
product or service extracting & avoiding
collectively
forms groups or cartels exporting fluctuaions
to rule the market
What is Kieretsus?
3. These are formed in order to enhance the abilities of individual member businesses to
compete in their respective industries.
4. Kieretsu members are peers and may own significant amounts of each other's stock and
have many board members in common.
5. In Kieretsu members remain independent companies in their own right: the only strategy they have
in common is to prefer to do business with other kieretsu members, both when buying and when
selling.
6. However, they are different from conglomerates (Common in western countries and also found in
India) wherein all members are lineated through ownership pattern.
7. A kieretsu also differs from a consortium or an association, as the primary purpose of a kieretsu
is not to share information or agree industry standards, but to share purchasing, distribution or
any other functions
To understand the competitive environment of the company the managers need to focus only on the important
tasks rather than gathering bulk of unimportant information.
The task of focusing only on important task can be done with the help of some well-defined concepts and
analytical tools.
A powerful and widely used tool for systematically diagnosing the significant competitive pressures in a market and
assessing the strength and importance of each is the five-force model of competition. (िौन िौन से competitive
presessure है और विसिी वितनी strength and importance है )
This model simply suggests that Competition is made of pressures operating in five different areas of market.
1. New Entrants.
2. Bargaining power of the customer.
3. Bargaining power of the suppliers.
4. Rivalry among current players.
5. Threats from substitutes.
How to use it
1. Identify specific competitive pressure associated with each of the five forces.
2. Evaluate how strong the pressure is (Fierce, strong, moderate weak)
3. Determine whether the collective strength of 5 competitive forces are conducive to earn attractive
profits.
Other Questions
x Porter's five forces model considers new entrants as a significant source of competition. T/F with reason.
x Industry is a composite of competitive pressures in five areas of the overall market. Briefly explain the competitive pressures
x Explain the factors that affect the strength of competitive pressures from substitute products.
x How the new entrant affects the competition?
Miscellaneous Questions
State with reasons which of the following statements is correct / incorrect
Managers must list and analyze all environmental influences for proper strategic understanding.
Incorrect: The environment encapsulates many different influences. The difficulty is in making sense of this diversity in a way which can contribute
to strategic decision-making. Listing all conceivable environmental influences may be possible, but it may not be of much use.
Changes of any type are always disquieting, sometimes they may be threatening."
Incorrect: Favorable changes either in the external environment or internal environment are not threatening and/or disquieting. Changes that are
initiated by the management to bring improvements in its working are not always disquieting. However, sometimes changes can be threatening
especially for old and weak organizations.
The rate and magnitude of changes that can affect organisations are decreasing dramatically
Incorrect: No. the reality is just the other way round. Business environment especially after globalization and liberalization is witnessing changes
that are fast paced and have far-reaching implications for businesses. This is true for economic, political, technological, legal, and socio-cultural
factors. This has created strong pressures on organization for proactive adaptation to environmental changes for survival growth and competitive
edge.
The process of strategy avoids matching potential of the organization with the environment opportunities.
Incorrect: In the process of strategic management an organization continuously scan its relevant environment to identify various opportunities
and threats. Organisations keen to grow and expand often look for promising opportunities that match their potential. Such opportunities become
a good stepping stone for achieving the goals of the organization.
Describe two environmental changes that you expect to have a major impact on the industry:
(i) Retail Industry
(ii) Automobile Industry
(iii) Education Industry
All the environmental forces impact industries in varying degree. Over a period of time these may change and oscillate between dominant factors and insignificant
factors. Candidates are expected to provide two environmental factors in their answer. In the answers given below a large number of factors have been included
Marks to be awarded on the basis of merit of two environmental changes highlighted by the candidates
QUESTIONS
1. Business is the state of being ________. It’s one’s regular __________________.
2. A business can have different forms like __________, _________________ or ________________ and different
functions like ______________, ____________, ________________, ______________.
3. As per Peter F Drucker, Profit is a reward for _______________________. It acts a ______________ yardstick.
4. Higher the _________________, higher the profit.
5. Some of the other factors that help in explaining a business, other than profits, are ______________
______________________________________________________________________________________________.
6. “Profit may not be a universal objective but business efficiency is definitely an objective common to all businesses”.
True/False? _____________
7. State the main objectives of business. (PEG-Survival & Stability)
11. _______________ is important during initial stages & economic slowdown. It depends on:
16. Business organization will take __________ from environment and will ___________ it and convert it into
__________, which will be given to customer and in return business organization will get _____________ which will
either be _____________ or ___________.
17. A business even if it continually remains passive to the relevant changes in the environment, would still grow and
flourish. True/False? ___________
18. Environmental constituents exist in isolation and do not interact with each other. True/False? _________
19. There is both opportunity and challenge in changes happening in environment. True/False? _________
20. The basic objective of a business enterprise is to monitor the environment. True/False? _________
21. State the steps (framework) & sub-steps to understand environmental influences.
22. State 3 problems that arise in understanding environmental influences and state in brief the reasons for each.
a) a) a)
b) b) b)
c) c) c)
a) a) a)
b) b) b)
a) a) a)
b) b) b)
c) c) c)
23. To understand the nature of organization’s environment, the 2 questions that need to be answered are:
25. Relationship between organization & environment depends on the exchange of _______________, ______________,
___________________________.The factors on which this relationship depends on are:
28. Some of the related factors while monitoring the environment are:
40. Micro environment is also known as ________________________ and affects business and marketing in the daily
operating level.
41. _________________ are the people who pay consideration to buy the goods and services of the organization.
42. With regards to customers, a business must study:
43. __________________ are the other business entities and compete for resources as well as markets.
44. Some of the few major questions that may be addressed for analyzing competition are:
47. ___________________ provide materials, equipment, services. They can affect cost structure of the industry, with their
____________________________.
48. Organizations have to take a major decision on __________________ or __________________________ depending on
the supplier environment.
49. ___________________ are the link between customer & supplier.
50. State the elements of Macro environment:
b) b) b)
c) c) c)
53. _________________ the population size, better it is for business. (Smaller, larger)
54. __________________ refers to characteristics of group of people sharing common culture. It has a dual impact:
Company’s _______________ & _________________.
55. Organizations have to determine the impact of change in ethnic mix on _____________________ and ____________.
56. _________________________ leads to change in saving and consumption pattern (spending habits).
57. _________________________ means the general economic situation, conditions which impact demand, supply, cost,
availability, reliability, etc. It determines _____________ and ___________ of the market.
58. When studying the economic environment, we scan, monitor & forecast, assess the following:
61. A change in the elected government does not affect the business environment. True/False? ___________
62. Socio-cultural environment consists of factors related to government and politics. True/False? ________
63. The core beliefs & values of a particular society tend to be ________________. Business cannot change them & therefore
they become major determinants of business functioning.
64. Important social factors are:
67. Globalization means _______________ of world into one huge market and is done by removal of
_____________________.
68. At company level, globalization means ______________________________________________________ and
_________________________________________________________________________________.
69. Companies which go global are known as ______________________ or _______________________.
70. State some of the effects of a Global Environment. (8-9 points)
73. Expansion into foreign markets can be achieved through following options:
74. ___________ analysis is the framework for analysis of Macro environment Factors. It encourages:
a) ________________________________________________
b) ________________________________________________
75. Write the characteristics of the following Strategic response types to the environment:
LEAST RESISTANCE PROCEED WITH CAUTION DYNAMIC RESPONSE
85. There can be 2 types of arrangements in cartelization known as ____________ and ______________. Its primary aims
are:
a) _________________________________________________________________
b) _________________________________________________________________
86. What is Kieretsus?
Ans: _________________________________________________________________________________
87. A Kieretsu usually exists in ___________________ industries. (related/unrelated)
88. Kieretsu are formed in order to ____________________________________________________________
_____________________________________________________________________________________.
89. Kieretsu members may have many board members in common. True/False? ___________
90. Kieretsu networks are almost same as conglomerates. True/False? __________
91. A kieretsu differs from a consortium. True/False? ___________
92. State 2 disadvantages of a family owned cooperation.