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 Business environment refers to the sum of internal and external

forces operating on an organization.

 Internally, an organization can be viewed as a resource

conversion machine that takes inputs (labor, money, materials
and equipment) from the external environment (i.e., the world
outside the boundaries of the organization), converts them into
useful products, goods, and services, and makes them available
to customers as outputs

 Externally environment of business consists of forces operating

outside the organization.


 Vhe external macro environment consists of all the outside
institutions and forces that have an actual or potential interest or
impact on the organization's ability to achieve its objectives:
competitive, economic, technological, political, legal,
demographic, cultural, and ecosystem.

 Vhe external microenvironment consists of forces that are part of

an organization's marketing process but are external to the
organization. Vhese micro environmental forces include the
organization's market, its producer-suppliers, and its marketing
intermediaries.
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 Businesses may be doomed to be non starters due to restrictive
business environment which may take the form of rigid
government laws ( no polluting industry can ever be located in
around 50 Km radius of the Vaj) , state of competition ( Car
manufacturing capacity presently in the country is far in excess of
demand) etc.

 Vhe present and future viability of an enterprise is impacted by

the environment For eg no V manufacturer can be expected to
survive by making only B&W television sets when consumer
preference has clearly shifted to colour television sets.


 Vhe cost of capital and the cost of borrowing - two key financial
drivers of any enterprise are impacted by the external
environment . For eg the ability of a business to fund its
expansion plan by raising money from the stock markets
depends on the prevalent public mood towards investment in
stock markets.

 Vhe availability of all key inputs like skilled labour , trained

managers , raw materials , electricity , transportation , fuel etc
are a factor of the business environment.



 Increasing public awareness of the negative aspects of certain

industries like hand woven carpets ( use of child labour ) ,
pesticides (damage to environment in the form of chemical
residues in groundwater), plastic bags (choking of sewer lines)
have resulted in the slow decline of some industries.

 Finally , the environment offers the opportunities for growth and

profits . For eg when the insurance and aviation industry was
thrown open to the private sector , the new entrant could easily
build on the expectations of the public.
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 Changes in Govt. polices
 ariations in Growth Performances(Example: forward and
backward linkages)
 Corrective policy action
 Changes in market structure and competition
 Future expectations and business speculation(Example:
derivatives)
 Changes in consumer attitudes, tastes and preferences
 Imports and foreign investment changes
 External economic shocks
 Non economic factors
å $ %
 Vhe term globalization means international integration. It includes
an array of social, political and economic changes.

 In early 1990s the Indian economy had witnessed dramatic policy

changes. Vhe idea behind the new economic model known as
Liberalization, Privatization and Globalization in India (LPG), was
to make the Indian economy one of the fastest growing
economies in the world.
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1. „
 Vo solve the balance of payment problem Indian
currency were devaluated by 18 to 19%.

2. „


  Vo make the LPG model smooth many of the
public sectors were sold to the private sector.

3.   „ 

 „ FDI was allowed
in a wide range of sectors such as Insurance (26%), defense
industries (26%) etc.

4.   Vhe facilities which were available to foreign

investors were also given to NRI's.
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 Vhere is an International market for companies and for

consumers there is a wider range of products to choose from.

 Increase in flow of investments from developed countries to

developing countries, which can be used for economic
reconstruction.

 Greater and faster flow of information between countries and

greater cultural interaction has helped to overcome cultural
barriers.

 Vechnological development has resulted in reverse brain drain in

developing countries.
„     

 Vhe outsourcing of jobs to developing countries has resulted in

loss of jobs in developed countries.

 Vhere is a greater threat of spread of communicable diseases.

 Vhere is an underlying threat of multinational corporations with

immense power ruling the globe.

 For smaller developing nations at the receiving end, it could

indirectly lead to a subtle form of colonization
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