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Chapter 2

Environment Scanning and


Importance of Business Environment
Environmental analysis is careful study of
various factors influencing the business. It is
the process by which organization monitor
their relevant environment to identify
opportunities and threats affecting their
business.

Environment analysis helps to identify opportunities


and to plan to take appropriate action to avail these
opportunities. It also helps in developing an early
warning system to prevent threats or to develop
strategies which can turn a threat to the firms
advantages. Environment analysis is the study of
technological factor, political factors, global factor etc.
By carefully analyzing the environment, the
businessmen come to know the opportunities provided
and threat posed by environment. Keeping in view, its
strengths and weakness, it can avail benefits of
available opportunities and face threats.

Objectives
of
Environment
Scanning/ Analysis:
1.To
Understand
Current
and
probable Change In environment: it
is importance that one must be aware
of existing environment and changes in
various factors of environment likechanges in economic environment,
technological environment, political
environment, global environment, etc.

TO PROVIDE INPUT FOR DECISIONMAKING: DECISION-MAKING MEANS TO


SELECT AN ALTERNATE AMONG THE
VARIOUS AVAILABLE ALTERNATES. IN
THIS
PROCESS,
WE
NEED
INFORMATION
FOR
ANALYZING
VARIOUS ALTERNATES, SO THAT THE
BEST
ALTERNATE
IS
SELECTED.
ENVIRONMENTAL ANALYSIS PROVIDE
SUCH INFORMATION TO DECISION
MAKER.

To Formulates Appropriate Strategy:


Environmental analysis helps in
developing strategies and long policies
of the firm, by analysing opportunities
and threats to the business. For
example development of timely action
plans to deal with technological
advancement: and formulation of
effective counter-measures to face
competitors moves.

To ensure Optimum Utilisation of


Resources:
The key of business
success lies in the most effective
utilization of the companys resources.
All these involves the evaluation of
companys strengths and weakness in
the light of the environmental threats
and
opportunities
and
taking
appropriate measures to avail the
opportunities or to face the threats.

Other Objectives:
1. To identify the threats and opportunities
of environment.
2. To identify the strengths and weakness
of the business.
3. To diversify the business in new areas
and to keep the business dynamic.
4. To forsee the impact of various helps the
organization of business environment.

Thus, environmental analysis helps the


organization to identify, understand and
adapt to external issue; to anticipate
the consequences of the environmental
factors and to develop well thought out
plans and polices.

Process of environment scanning/Analysis:


The process of environment analysis includes various
steps like monitoring various sources OF relevant
information related to environment factors affecting our
business, searching and scanning the required
information, making necessary forecasts on the basis
of information so collected. Later these information
and forecasts are assessed and evaluated to
understand various environment changes and their
impact on business. Various steps in the process of
environment analysis are discussed below:

1. Monitoring: It means to understand


the various environment factors which
affect the business and to identify
published or unpublished sources of
information which affects our business.
These sources can be:
A) Newspapers: Economic Times,
Financial Express, Business standard,
Times of India, Hindustan Times, etc.

b) Magazines and Journals: Business


India, Business World, Economic and
Political Weekly, Harward Business Review,
India Today. The Sunday Observer, Yojana,
Southern Economist, etc.
c) Government Publication: Census of
India reports, Five Years plan reports,
periodical reports like economic survey,
annual survey of Industries, annual reports
of ministries, RBI bulletins, Books of
publication Division, etc.

d) Institutional

publications:

1. Bombay Stock Exchange Directory


2. Publication of National Council for Applied
Economic Research (NCAER)
3. Publication of centre for Monitoring Indian
Economy (EMIE)
4. National Sample Survey organization Reports
5. Annual Company Reports
6. Publication of Trade and industry federations
etc.

e) International

publication:

International
institutions
like
World
Bank,
International
monetary
fund,
World
trade
organization. United Nations Conference on trade
and Development (UNCTAD), United Nations
organization (UNO) etc., conduct surveys and
publish their reports. Some of the publications are:
1. World Development Reports
2. Human Development Reports
3. UNCTAD handbook of Statistic
4. World Trade Report
5. World Investment Report

2. Searching and Scanning: Even when the


sources of required information's exist, these may not
be readily available. Search and scanning are
therefore needed to manage the timely availability of
required information. A number of organizations have
Clipping Service which constantly scan newspaper,
periodicals, etc. and prepare clipping containing
information required by different departments or
executives of organization. Many organizations have
management information system for systematic
gathering,
processing,
storing
and
providing
information.

Spying although, regarded unethical


by many, is not very uncommon is
business. This has been used to a
considerable extent to obtain secret
information regarding defenses and
space
research.
Some
private
agencies also provide information on
competitors plans and activities which
are essential for strategic planning.

3. Forecasting: Monitoring and scanning


provide a picture of what has already taken place
and what is happening. Strategic decision-making,
however, requires a future orientation. So,
forecasting is an essential element in environment
analysis. Forecasting is concerned with estimation
of direction and intensity of changes in
environment factors. Forecasts of important
components of business environment like
economic environment, social environment,
technical environment and political environment
help in formulating plans and strategies.

For example, forecasting the


general economic conditions, per
capita income, and growth rate of
population, expenditure pattern of
population; technical advancement,
etc. play a vital role in business
decision-making
and
strategy
formulation.

Evaluation and Assessment:

Monitoring,
scanning and forecasting are not ends in
themselves. They simply provide information
regarding current business environment and future
business environment. But in assessment, we
identify and evaluate as to how these
environmental changes will affect our business so
that appropriate counter strategies can be made
well in time. Assessment provides us answer to the
key issues presented by the environment and their
impact on business.

In brief, in monitoring, sources


of information are identified. In
scanning, required data and
information is collected from
identified
sources.
In
forecasting, changes in future
are identified. In assessment,
affect of these changes on
business is assessed.

Techniques of Business environment


scanning: Techniques of environmental

scanning
refer
to
methods
of
monitoring various sources of relevant
information, searching the required
information and making forecasts on
the basis of information so collected.
Various
methods/techniques
of
environmental scanning are discussed
below;

Monitoring the published or unpublished


sources of information:
In monitoring
various sources of published or unpublished
sources of information are identified which affect
our business. Experts/Top executives identify the
relevant sources of information like relevant
newspapers, magazines, government publications,
institutional publications, international publications,
etc. While identifying the published sources of
information, reliability of sources of information,
assumptions made and methods used for data
collection by published sources are taken care of.

If the information of published sources is not reliable or


assumption/methods used by published source do not
match with our requirements, then the whole purpose of
environmental scanning will go waste. In such situation,
first hand information, i.e. primary data is collected.
Primary information is often used along with secondary
sources of information. While collecting primary data,
trained
investigators
are
used
who
design
questionnaire, conduct survey of the potential market
area and collect the relevant information. Many a time,
verbal information like news from electronic media,
panel discussion on T.V. debates, workshops,
seminars, conferences, etc. are used along with above
stated data.

Searching the required information: After


identifying the sources of information, the required
information is searched from published sources and it
is supported with primary and verbal information. A
number of organizations have clipping services which
constantly scan newspapers; periodicals etc. and
prepare clipping containing information required by
different departments or executives of organization.
Many organanisation have management information
system for systematic gathering, processing, storing
and providing information.

Spying, considerable extent unethical


by many is not very uncommon in
business. This has been used to a
considerable extent to obtain secret
information regarding defence and
space research. Some private
agencies also provide information on
competitors plan and activities which
are essential for strategic planning.

Forecasting: Monitoring and searching of the


required information provide a picture of what has
already happened and what is happening strategic
decision making and policy making. However, require
a future orientation. So forecasting is essential and
most
important
for
environmental
scanning.
Forecasting of various components of business
environment helps in formulating plans and strategies.
Different
quantities
and
qualities
forecasting
techniques are used for environment forecasting. The
main methods of environmental forecasting are as
follows:

1. Executive Opinion method: It is also known


executive judgement method/jury method. In this
method, business environmental forecasting is based
on opinion and views of top executives. These top
executives are working at high ranks in different
departments such as marketing, production, research,
finance, etc. A panel/jury/committee is formed
consisting of these top executive. Each member of jury
gives an estimate of future events for a particular time
period based on available information, judgement and
experience. Their individual opinions are analysed and
discussed in the panel meeting. At the end, collective
decision is taken regarding business forecasts for a
specific time period.

2. Expert opinion method:

In this
method, business forecast is based on the
opinion of outside experts. Opinions of
outside experts or specialists form the basis
of this method. These experts have best
knowledge about the market conditions,
tastes and preferences of target customers,
level of competition, governments policies,
political conditions etc. in this method also;
panel of outside experts is made.

The experts give their opinions. Their opinions


are analyzed, discussed and then collective
decision is taken regarding business forecast.
This method is almost similar to Executive
Opinion method. The only difference is that in
Executive opinion method, executives of
business unit itself discuss their opinions and
reach at final estimate, while in experts
opinion method, services of outside experts
are hired and estimate is based on opinion of
these outside experts.

3. Delphi

Method:

Delphi method of
forecasting is an extension of experts opinion
method. This method is used to consolidate the
different expert opinions so as to reach a common
estimate. This method involves no panel formation.
In this method, consensus of different experts is
reached without direct interaction among them. In
this method, opinion of first expert is provided to
second expert and second expert is asked to form
his opinion on the basis of his knowledge and
considering opinion of the first expert.

Then final opinion of second expert is


handed over to third expert and then the
third expert is asked to give his opinion
considering the previous opinion and his
own knowledge. This procedure goes on,
depending upon number of experts hired by
the business unit. The last expert forms the
final opinion about sales forecasts. In this
method, no collective meeting of experts is
arranged.

4. ECONOMIC INDICATORS ANALYSIS METHOD: In


this method, forecasting is based on certain indicators
affecting business unit. After through analysis of these
economic indicators, forecasting is done. For example,
a) If government has announced liberal loan policy for
farmers, then tractor manufacturing units will forecast
their sales at higher levels. B) If government makes
the use of helmet compulsory for both driver and pillion
rider, then helmet manufacturing units will estimate
their sales at higher level.

5.

The
assumption of this method is that past events
will have their impact on future. In his
method, results of immediate previous years
or average of past few years are taken as
base. Estimates made using this method are
more reliable and are free from guesswork.
But if there are major changes in components
of business environment, then forecasts of
this method may not prove useful.
Past

Projection

Method:

6.

Statistic Methods: Beside the


survey and opinion-base methods,
certain statistic methods are also used
in environmental forecasting. These
methods are more scientific and
estimates made through these methods
are more reliable. In statistic methods,
an element of subjectivity is minimum.
Following
are
commonly
used
statistical methods:

Trend Projections: This method is based

on time series analysis. In this method, a


trend equation and a trend line is framed
keeping in view the past behavior (trend) of
data. On this basis forecast of future period
is made.
Trend Equation in time series analysis is
based on least square method. The basic
formula is

Y
Y
X
a

= a + bX, where
= Dependent Variable
= Independent variable
= value of dependent variable on the
basis of given change in
Dependent.
b = Rate of change is dependent
variable on the basic of given
change in dependent variable.

In this
method, simple and multiple
regression equations are used
to estimate the value of
dependent variable on the basiS
of given value of independent
variable /variables.
b)

Regression

Analysis:

There are various methods for


environmental forecasting. All the
methods have their own merits and
demerits. The selection of right kind of
method depends upon purpose of
forecasting, availability of relevant data,
available time, available finance,
convince etc. Some business units use
more than one method for forecasting
so as to get reliable estimates.

7. Scenario
Development
Method:
Scenario development method is a popular
method of forecasting when it is possible to
make precise forecast of future. It is used for
scanning complex environmental events.
While analyzing socio-cultural and political
environment, this method is much used. In
this method, different alternative scenarios
are developed. Generally, three possible
alternative scenarios are developed:

1.Scenario under worst conditions


2.Scenario under best conditions
3.Scenario under most likely
conditions
For all these alternative scenarios,
future course of action, strategy
and contingency action plans are
developed.

These contingency action plans help the


business managers to face the future
uncertain events with more confidence and
diligence. Even our planning commission
makes three types of GDP growth
estimates:
1. Under pessimistic/worst conditions
2. Under Optimistic or most favourable
conditions
3. Most likely conditions

8. Brainstorming method: Brainstorming is a

technique used to generate new, innovative and


unique ideas and forecasts. In this method, group
member are encouraged to generate ideas,
discuss them and make forecasts. In this method, a
problem is assigned to a group. The group
members are asked to generate innovative ideas
using their creative thinking, so that various
possible alternative ideas are generated. At the
stage of idea generation, these ideas are not
evaluated so that members feel free to generate
more and more ideas. At later stage, these ideas
are critically evaluated.

Business Barometer method: This method


is
used
for
forecasting
economic
environment. Index numbers are used as
business
barometer
for
measuring
economic trends. The index numbers help to
analysis
long-term
trends,
seasonal
fluctuations and cyclical movements in the
economy. Index numbers measure the
growth rate and the direction in which
economy is moving.

Other Techniques:
1. SWOT Analysis: SWOT analysis is
an analysis undertaken by business firms to
understand their external and internal
environment. The terms SWOT consist of
four words.
S = Strengths
W = Weakness
O = Opportunities
T = Threats

SWOT analysis is applied to formulated


effective organizational strategies. Through
SWOT analysis, the business firm can match
the strength (S) and weakness (W) existing
within
an
organization
(
in
internal
environment) with the opportunities (O) and
threats (t) existing in the external environment.
It enables a business firm to use its strengths
to exploit the opportunities provided by the
environment. On the other hand, threats of
environment are reduced by lowering its
weakness to the minimum level.

2. ETOP Analysis: ETOP analysis stands for


environmental threat and opportunity analysis. In
ETOP analysis, impact of each environmental factor
on business unit is analysed. The favourable change
in any components of business environment brings
opportunities for business units while unfavouable
changes in any component of business environment
poses threat for business unit. Understanding the
opportunities and threats helps the business managers
in designing the appropriate strategy so as to get
maximum gain from the opportunity and to save the
business unit from negative consequences of threat.

Factor Affecting Environmental


Scanning: No two business units
will scan the different components of
environment in the same manner.
Various factor affect environmental
scanning. Main factor are:

1. Personal
Strategist:

Ability

of

The persons who are involved in


environmental scanning may be different with regard
to their ability, experience, judgement, interpretation
skills, educational level, age, socio-cultural values, etc.
Different persons analyse the same situation in
different manner. Some persons are pessimistic. One
person may perceive a change in environment as
opportunity, while other person may perceive it as
threat. In this way, the results of environmental
appraisal are significantly affected by the personal
ability of strategist.

2. Internal Environmental or organizational


factors: Internal environment of different business
units is different. For a business unit that possesses
huge financial resources, skilled human resources,
large market size, good brand image, corporate image
etc. A change in environment may offer opportunity,
while the environmental change may pose threat to
another business unit which is facing financial crunch,
labour problem like strike. In this way various internal
environmental factors affect environmental scanning.

3. External Environment Factors: If external


environment of a business unit is very
complex, and different external environmental
factors are interdependent, then scanning of
such environment requires in-depth analysis.
It necessitates the use of various quantitative
tools to get reliable result from environmental
scanning. On the other hand, if external
environment of any business unit is simple
and less dynamic then scanning of such
environment is comparatively easier.

Limitations of environmental Scanning /Analysis:

Environmental analysis has certain limitations.


These limitations are as follows
1. Unexpected Events: Environmental analysis is
concerned with monitoring current business
environment
and
forecasting
the
future
environment of the business. Future is always
uncertain as any unexpected change may take
place in any of the factor affecting business.
Because of these unexpected changes, the results
of environmental analysis may prove wrong.

Environmental analysis is not the only factor in


strategy formulation: Strategy formulation is

based
on
various
inputs,
while
environmental analysis is only one of these
inputs. Hence it is not sufficient guarantor of
organizational effectiveness.
3. Inaccurate
Data:
The
result
of
environmental analysis will be reliable only when
the data used in forecasting is correct. But it is
quite possible that data used in forecasting is
inaccurate. It may reduce the effectiveness of
environmental analysis.

Too much dependence on information


collected
through
Environmental
Analysis: Success lies in adventure.
4.

Environmental analysis often makes


decision taker too cautious in his
approach. He is likely to miss some
innovative and new ideas which
although appear to be risky, but may
prove beneficial for the business.

Responsibility for Environment Analysis:


Environmental analysis is the work of top-level
officials. The responsibility of environmental
analysis cannot be assigned to lower officials.
Some organizations maintain separate department
of management information system. This
department provides information to the managers
as and when required. The work of environmental
analysis can be assigned as this department
provides information for decision-making and
strategy formulation.

The work of environmental analysis can also be


assigned to the committee consisting of top
officials of various departments like department of
finance, purchase, marketing, R&D etc. The best
alternative is to have a separate department for
environmental analysis to be headed by a
competent official. This would entail additional
expenditure, but the business will gain in terms of
effective decision-making, effective counter
strategies to face competitions and timely action
plans for facing sudden changes in various
component of external environment.

SWOT As A Technique of Environment


Analysis: SWOT analysis is an analysis

undertaken by business firms to understand


their external and internal environment. The
term SWOT consists of four words.
S = Strengths
W = Weakness
O = Opportunities
T = Threats

SWOT analysis is applied to formulate


effective organizational strategies. Through
SWOT analysis, the business firm can match
the strengths (S) and weakness within an
organization (in internal environment) with
the opportunities (O) and threats (T) existing
in the external environment. It enables a
business firm to use its strengths to exploit
the
opportunities
provided
by
the
environment. On the other hand, threats of
environment are reduced by lowering its
weakness to the minimum level.

Strengths

and

Weakness

of an
organization
are
related
to
internal
environment. Strengths and weakness can
be in the form of :
Technological Capabilities
Human resources
Production Facilities
Financial Resources
Marketing Capabilities

A company can be strong or weak


in respect of technology, finance,
human
resources,
marketing
capabilities
and
production
facilities. The task is to make best
use of its strengths and to reduce
the weakness to the minimum level.

Opportunities and threats are


related to external environment. The
environment might present many
opportunities but the company might
not have the strengths to avail these
opportunities;
while
some
other
companies may be strong enough to
avail the opportunities provided by
environment.
Similarly
the
environment might pose a threat in the
form of growing
competitions and the company may or
not have the strength to meet the

The strength of reliance Industries in raising


finance from the public is established. So this
industry is very strong in capital intensive
sector, because of its strength in raising
finance from the public from national and
international
markets.
The
strength
of
Japanese companies are very strong in those
industries which need high skills like
electronic, computers, telecommunication etc.
For many companies, the primary strength is
in the brand image, company reputation and
marketing. The strength of Hindustan unilever
is in brand image and it has diversified in
many areas because of its popular brands.

2. Weakness:

The weakness of a firm


refers to limitations of a business firm. It results in
significant disadvantage for a firm in comparison to its
competitors. For example, overdependence of a firm on
a single product line, outdated technology, lack of
financial resources, lack of good quality products, etc.
can be weaknesses of a business unit. It can result in
losses in times of crisis. The weakness of proctor and
gamble is overdependence on a single product lineVicks. If at any time, this product line faces competition,
the revenues of proctor and gamble will be badly
affected. Similarly, overdependence of Colgate is on
single product line- toothpaste and tooth powder. This
company has not diversified in other consumer goods. It
is its weakness.

Opportunities:

The availability of
opportunities is a favourable condition in the
organizations environment. If a company has
enough strength to avail the opportunities. It can
generate extra profits. For example, government
has made it mandatory for two-wheelers driver
to wear helmet while driving the vehicle. This
has created opportunities for helmet industry.
Similarly, reduction in custom duty and excise
duty by government on telecommunication
products and electronic products has lead to
increase in the demand for these products.
3.

It is opportunity for manufactures of


telecom products and electronic
products. India has emerged as a
global manufacturing base because of
talented human resource and cheap
labour. MNCs like Toyota, ford,
Hyundai, Suzuki, etc. are taking
benefit of this opportunity by setting
their manufacturing base in India.

4. Threat:
It is unfavourable conditions in the
organizations environment. It creates a risk for the
organization. Threat can be in the form of growing
competition, change in fashion, unfavourable changes
in government policy, raw material shortages etc. For
example, maruti-Suzukis swift and wagon R cars are
facing threat in the form of increased competition from
Hyundais i-10, i-20, Ford figo, volkswagen polo, Toyota
Etios, Chevrolet beat, Tatas Indica etc. Similarly entry of
Reliance and Tata in telecommunication sector has
posed threat to existing companies. Honda Activa
Scooter has captured the market share of kinetic
scooter. Liberal import of chines toys is posing threat to
Indian toy industry.

After the identification of environmental threats and


opportunities and the organsational strengths and
weakness, the management should consider various
strategic alternatives and choose the most
appropriate strategy. Thus, environmental analysis is
an important step towards corporate planning and
business policy formulation. Corporate managers
analysis the strength, weakness, opportunities and
threat that exist for their business. It gives time to
anticipate opportunities and to take appropriate
action to avail these opportunities. It also helps in
developing strategies for preventing the threats to
the business.

Significance/need of the study of Business


environment: It is essential for a business enterprise to
keep itself aware of surrounding environment because the
success of business depends to a great extent on its
awareness
about
surrounding
environment.
The
information about changes taking place in the environment
enables business enterprises to adjust itself accordingly. A
business enterprise can expend itself as and when
favourable changes take place in the environment. If the
environment is getting hostile, the business enterprise,
individually or along with other business enterprises, can
make efforts to make environment hospitable according to
the requirement of business. The benefits of environmental
study may be specified as follows:

1. TO FRAME POLICIES: The business enterprise


should make it policies keeping in view the demands
of environment. It should change its policies and
strategies with the changes in environment. The
success of business enterprises depends upon quick
adaptability to environmental changes.

To
ensure
optimum
utilization of resources: The study
2.

of business environment is important for optimum


utilization of resources available to any business
unit. These resources can be financial resources,
human resources, and physical resources. Without
through understanding of internal and external
environment, resources can not be used in optimum
manner

To
Analysis
competitors
strategies and formulate counter
measures: By environmental study,
we come to know about the strategies
of competitors and we can formulate
effective counter-plans to face them.
These counter plans will help the
business enterprise in protecting and
increasing its market share.
3.

4.
To keep Business dynamic and Innovative:
Awareness of environmental changes makes the
business managers more alert and dynamic. They
can expand their business as and when any
favourable change is taking place in the market; and
if any unfavourable change is taking place in the
market, then they can prepare themselves for facing
these unfavourable changes with well planned
strategies.

5. To provide input for decision-making:


Decisionmaking means to select an alternative
among the various available alternative. In this
process, we need information for analyzing various
alternates, so that the best alternate is selected.
Study of business environment and its various
components provides such information to decisionmaker.

. 6 To find out the strengths of business: The


strength of a business organization refers to the
capacity by which an organization can gain
advantage over its competitors. Environmental
analysis helps the business organization to find out
its strengths. After finding strengths, we can make
our policies and strategies to expend our business
and to take advantages over competitors.

7. To identify Weakness of Business:


The
weakness of a firm refers to limitation of a business
firm. It results in significant disadvantages for a firm
in comparison to its competitors. Environment
analysis helps us to find out weakness of our
business. For future growth and expansion of the
business, decision-makers should make plans to
overcome weaknesses.

8. To find out the opportunities


Available
to
business:
The
availability of opportunities is a
favourable
condition
in
the
organisations environment. If the
company has enough strength to avail
the opportunities, it can generate extra
profits. Environmental analysis helps
us to know the business opportunities
so that we can formulate timely action
plans to take full advantages.

9. To identify threats posed to business: Threat


is unfavourable condition in the organizations
environment. It creates a risk for the organizations.
By environmental study, we can identify the risk to
the business. This risk can be because of
technological changes, political changes, economic
changes, increase in competitions, change in
fashion, unfavourable changes in government policy,
raw material shortages etc. After analyzing these
risks, the business enterprises can make plans to
manage such risks.

10. To know the internal Environment: The


business manager should be familiar with internal
environment of the business. Change in internal
environment may affect the business in a positive or
negative manner. For example, strike by worker is a
change in internal environment, with negative effect
on business. So study of internal environment helps
to monitor such changes and make timely
adjustment with these changes.

11.To understand market Conditions:


The
business has to sell its products in the market.
Various components of market viz. consumers,
competitors, supplier etc. affect the success of
business. To understand the market conditions viz.
change in demand and supply of goods, change in
fashion, tastes level of competition, boom or
depression etc., study of business environment is
done.

12. To adjust with technological Advancement:


A business enterprise should make time action
plans to adjust with technological advancement. The
firm which quickly adopts latest technical will have
competitative advantages over others. If in any
corner of the world, any technological improvement
regarding our products has been made, then we
should try to grasp it, to take competitive edge over
river.
Thus,
adapting
latest
technological
development helps the business to improve its
efficiency.

13. To understand international


events and their impact on
business:
Because of increasing
globalisation,
the
impact
of
international events on the business is
increasing. To understand global
events and their Impact on business,
study of international environment is
must.

14. To understand economic policies of


government and their impact on business:
Various polices of government viz, export-import
policy, taxation policy, industrial policy, monetary
policy, foreign investment policy have deep impact
on the business. Changes in theses policies may
pose threat to business or create favourable
opportunities for business. Change in theses policies
should be closely monitored so that timely action can
be taken and effective business plans can be made.

15. To understand political situation and


its effect on business: Political situation
within the country and in other countries
affect business. Ideology of
ruling party,
political stability, political pressure, political
relations of our government with other
countries etc. affect our business. Study of
political environment will help the business to
understand the effect of political situation on
business.

16. To foresee the impact of SocioCultural Factor: With the knowledge


of socio-cultural factor like caste,
religion, cultural, value system,
education,
family
size,
family
structure, urbanization, etc. business
enterprise can make timely changes
in its policies, so as to adjust its
products with the change in sociocultural factors.

Conclusion: In general, by environment study, one


can know the opportunities and threats which a
business may face in future. If there is any
favourable opportunity, we can quickly respond to it
and can take competitive advantage. If there is any
threat, we can counter it with well thought out
strategies and can save the enterprise from such
threat.