Business environment

It is a combination of two words

Meaning of Business
Business is an economic activity, which is related with continuous and regular production and distribution of goods and services for satisfying human wants with an objective of earning profit.

Definition of Business
Lewis Henry defines business as, "Human activity directed towards producing or acquiring wealth through buying and selling of goods. According to Dicksee, "Business refers to a form of activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted."

Meaning of Environment
Environment refers to the aspects of surrounding. It refers to set of conditions which have a bearing on the functioning of the business. These are essentially the givens within which firms must operate in a specific country and they vary, often greatly, from country to country.

Business environment
Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business and affects the business decisions of a firm.

Nature or characteristics of Business environment

Internal and external environment: Every business enterprise is surrounded with Internal and external environment. Dynamic in nature Inter-dependence: business is influenced its environment and in turn it will influence the external factors. Uncertainty: It is very difficult to predict the exact nature of future happenings and the changes in economic and social.

 Business environment is different for different business units It has both long term and short term impact Business Environment differs from place to place, region to region and country to country.

Need and importance of Business environment

Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully. Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

 Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. Image Building: Environmental understanding helps the business organizations in improving their image by showing their sensitivity to the environment within which they are working. Meeting Competition: It helps the firms to analysis the competitors strategies and formulate their own strategies accordingly.

Structure of Business environment

Internal environment External environment

Internal environment
Has direct impact on the business. They are the factors which have a bearing on the decisions of a business and which are generally controllable Value system Vision, Mission and objectives Management structure Human resources Company image

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Values
A value is a belief, a mission, or a philosophy that is really meaningful to the company. An example of business value is Customer satisfaction. Another example of a value is Being ethical and truthful

Utility of values in business

Values release energy because they motivate people to work together collectively Values are never ending goals. The more you pursue them, the greater the energy they release and put into action.

Vission
A Vision statement outlines WHERE you want to be. Communicates both the purpose and values of your business. A vision statement talks about your future. It lists where you see yourself some years from now. It inspires you to give your best. It shapes your understanding of why you are working here.

Mission
Mission statement answers: 1. What do we do & 2. What makes us different Mission statement talks about the present leading to its future.

External environment
A business does not operate in vacum. It has to act and react to what happens outside the factory and office walls. These factors that happens outside the business are known as external factors or influences.

External environment
Micro environment Macro environment

Micro environment
It is also known as operating environment Micro environment consists of factors or actors in the business firms which are immediate environment that affects the performance of the firm. It includes the suppliers, marketing intermediaries, competitors, customers, and the public.

Micro environment

Macro environment
1. 2. 3. 4. 5. 6. 7. 8. Economic environment Political environment Legal environment Socio cultural environment Demographic environment Natural environment Technological environment Global/ International environment

Economic Environment
Business cycles GNP trends Interest rates money supply Inflation Unemployment Disposable income Economic policies

Socio cultural environment

Population demographics Income distribution Social mobility Lifestyle changes Attitude to work and leisure Level of education Consumers preferences, habits and beliefs

Natural environment
Environmental protection Waste disposal Energy consumption

Technological environment
Government spending on research New discoveries/ development speed of technology transfer Rates of obsolescence

Political and legal environment

Government stability Taxation policy Foreign trade regulations Social welfare policies Monopoly legislation Labour laws/ employment law Indian companies law, FERA,FEMA, Competition act, COPRA, SEBI, Environment protection act

International environment
Interdependent economies Decisions of International institutions FDI