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Business Environment: Business is an activity that involves many activities like

production finance marketing trade insurance agency
Business Meaning: packaging etc. all business carried out to earn a profit by
All creative human activities relating to the production fulfilling the needs of consumers. In other words business
of goods or services for satisfying wants are known as involves people they occupy central place around whom by
Business. whom and for whom a business is run. BUSINESS IS
According to Peterson and Plowman: PEOPLE.
“Business may be defined as an activity in which
different persons exchange something of value, whether goods Nature of Business:
or services for mutual gain or profit” 1. Vary in size
According to W.R. Spiegel: 2. To earn a profit
“All the activities included in the production and sale of 3. Supplying of goods and services
goods or services may be classified as business activities” 4. Creation of job opportunities
According to F.C Hooper: 5. Offer to better quality of life
“Whole complex field of commerce and industry, the 6. Contributing economic growth of country.
basic industries, process and manufacturing and the network of 7. Society can not do without business
ancillary services, distribution, banking, insurance, transport,
and so on which serve and interpenetrate the world of business Scope of Business:
as whole. Business includes all activities connected with
Thus, business may be understood as the “Organized production, trade, banking, finance, insurance, agency,
efforts of enterprise supply consumers with goods and services advertising, packaging and numerous other related activities.
for a profit” Business also includes all efforts to associate with restrictions
“Business is an activity that carried out for the purpose and government requirements and obligation of consumers’
of supplying goods and services to consumers to satisfy their employees’ owners’ and to other interest groups.
felt needs”.


Business Environment: Technological environment:

No business organizations functions in a vacuum. Every It is the systematic application of scientific or other
business needs to take decisions and strategies purveying under organized knowledge to practical tasks. Its is through business
the many internal and external factors. The sum all those technology reaches people.
factors and forces which have a greater impact on the business
decisions are collectively called as Environment. Economic environment:
Business Environment Meaning: It refers to all forces, which have an economic impact
Business environment refers to all those internal and on business industrial production, agriculture, planning, basic
external factors which impact the functioning/performance of a economic philosophy, infrastructure, national income, per
firm and/or its decision making particularly strategies. capita income, money supply, population savings etc,
According to Gerald Bell:
“An organization external environment consists of Social cultural environment:
those things outside an organization such as customers, Such factors are out of company’s gate include peoples
competitors, government units, suppliers, financial firms and attitude to work and wealth, role of family, relation and
labour pools that are relevant to an organization’s operations” education, ethical issues, and social responsibilities of business.
Thus, it can be said environment as “the set of external
factors such as the economic factors, socio-cultural factors, and Natural environment:
government factors demographic factors geophysical factors, Business cannot bear the effects of natural hazards for
which are uncontrollable in nature and affects the business example drought, poverty and earthquake. Businesses still find
decisions of a firma or company. himself helpless before mighty nature.

Political Environment: Global environment:

It refers to the influence exerted by the three political It refers to international trade wherein currency
institutions viz., legislature, executive and the judiciary in diffentiation, language, international markets etc. The business
shaping directing developing and controlling business is reckoned t view as a global perspective.


• For the smooth functioning of the business it is very

Types of Business Environment: important to have reliable source of supply.
The business environment can be divided into two • Uncertainty regarding the supply or other supply
ways. problems will compel the companies to maintain high
(A) THE MICRO ENVIRONMENT OF BUSINESS and inventories which will cause increase in costs.
(B) THE MACRO ENVIRONMENT OF BUSINESS It is very risky to depend on a single supplier because a
strike, lock out or any other production problem with that
THE MICRO ENVIRONMENT OF BUSINESS supplier may seriously affect the company, similarly a change
The micro environment of business consists of the in the attitude of behavior of the supplier may also affect the
forces in the company’s immediate environment that affects the company. Hence, multiple sources of supply often help reduce
performance of the company. These forces are more closely such risks.
linked with the business than the macro factors. Many companies go for pertanising/relationship
According to Philip Kotler: marketing because of scarcity of resources and to maintain
“The micro environment consists of the actors in the healthy supply from the suppliers in international level.
company’s immediate environment that affects the
performance of the company. These include the suppliers, Customers:
marketing intermediaries, competitors, customers and the The customers have a direct impact on the business,
public. companies go to create and sustain customers for continuity of
The micro environment factors are discussed in detail as business. A company may have different categories of
follows. customers viz,
 Industrial customers
Suppliers:  Retailers customers’
The important force in the micro environment of a  Wholesalers customers
company is the suppliers i.e., those who supply the inputs like  Government bodies customer’
raw materials and components to the company.
 Foreign customers


3. Product form competition: in this type of competition

the consumer has to choose between different forms of
Labour: the product. For example if the consumer decides to go
In big organizations where hundreds of workers are for a washing machine the next question which form of
employed, the labour force is organized in the form of trade the washing machine semi automatic or fully automatic
unions. The trade unions interact with the management for front loading or top loading etc.
higher wages and bonus, better working conditions etc. They 4. Brand competition: this type of competition arises
pressurize the management for the fulfillment of their demands where consumers has many brands in similar products.
and resort to go slow tactics, strikes gherao. The marketer in this regarding needs to create brand
demand for the products.
Competitors play a vital role in running the business Marketing intermediaries:
enterprise; business has to adjust its various business activities The marketing intermediaries are those firms aid the
according to the behavior of the competitors. They are various company in promoting, selling, and distributing its goods to
types of competitors: final buyers.
1. Desire Competition. This type of competition generally The marketing intermediaries include middlemen such
found in where the countries having low income and as agents and merchants who “help the company find
the unsatisfied customers. Such a countries the basic customers or close sales with them”. There are three
Task of buying products go to either he or she has to intermediaries called
buy T V or refrigerator or washing machine. This type Physical distribution firms which assist the company in
of competition among desires is termed as desire stocking an moving goods from their origin to their
competition. destination” such as warehouses and transportation firms
2. Generic competition: generic competition arises where Marketing services agents which assist the company in
the consumers has many option in single line of targeting and promoting its products to the right markets such
products. For example one may have options in as advertising agencies, marketing research firms media firms
investing the money either in UTI or post office or and consulting firms
banks. It is called generic competition.


Financial intermediaries: Which finance marketing activities According to Elbing “Macro environment is the indirect action
and insure business risks. environment as it may not have an immediate direct effect on
Financiers: the operation but nevertheless have influence”.
Another important micro environment factor is the
financiers of the company. Besides the financing capabilities The important macro environmental factors are explained as
their policies and strategies attitudes (including attitude follows:
towards risk) ability to provide non financial assistance etc. are
very important 1. Economic environment:
Business fortunes and strategies are influenced by the
Public: economic characteristics and economic policy dimensions. The
A company may encounter certain publics in its economic environment includes the structure and nature of the
environment. A public is any group that has an actual or economy the stage of development of he economy, economic
potential interest in or impact on an organization’s ability to resources the level of income, the distribution of income and
achieve its interests. Media public, citizen action publics and assets global economic linkages economic etc.
local publics are some examples. Nature of economy:
The nature of economy is widely classified the
economies on the basis of the per capita income. Countries are
Micro environment:
broadly classified as
The macro environment of business includes activities
Low income economies: are economies with very low level of
which are uncontrollable and need proper nourishment and
per capita income.
attention on the part of a business enterprise.
High income economies: are countries with very rich income
According to Hill and Jones “The macro environment consists
per capita.
of the broader economic social demographic political legal and
Middle income economies: are economies falling between low
technological setting within which the industry and the
income and high income economies.
company are placed”.
Structure of the economy:
The structure of economy is classified on the basis of
contribution from many sectors like


Primary sector mostly agriculture whatever was decided by parliament. The judiciary has to
Secondary sector are large, medium and small scale industries. ensure that both the legislature and executive function in public
Economic Policies: interest and within the boundaries of constitution.
There are several economic policies which can have a The political legal environment of a business depends
very great impact on business. on:
Industrial policy. 1. Legal rules for business for its formulation and
Trade policy implementation, its efficiency and effectiveness.
Foreign exchange policy 2. Defense and military policy impact of defines on
Foreign investment and technology policy industrial enterprise in terms of trading with potential
Fiscal policy enemies, purchasing policies strategic industrial
Monetary policy: development etc.
Economic Conditions: 3. Political stability impact of factors like civil war, the
General economic conditions affect the business. declaration of presidents rule and emergency changes in
Economic pass through periods of boom and recession. A the form and structure of government administration.
boom is characterized by high level of output, employment and 4. Political organization ideology of the ruling
rising demand and prices. A recession has the opposite of these government philosophy of the political parties’ degree
characteristics. and extent of the bureaucratic delays, red tapism, the
influence of premier groups the question of donation by
2. Political and Government Environment: business houses to political parties.
Political environment refers to the influence exerted by 5. Flexibility and adaptability of law constitutional
the three political institutions: amendments their urgency and frequency, velocity of
1. Legislature public policies.
2. Executive 6. Foreign policy alignment or non-alignment tariffs
3. Judiciary customers’ unions’ etc image of the country and its
The legislature decides on a particular course of action. leaders.
Government is the executive and its job is to implement


In order to survive in today’s competitive world, a

3. Socio-Cultural Environment: business has to adopt technological changes from time to time.
Socio cultural factors include people’s attitude to work It is the systematic application of scientific or other organized
and health, role of family, marriage, religion and education, knowledge to practical tasks. In other words technology
ethical issues, social responsibility of business. include the tools both machines (hard technology) and ways of
thinking (soft technology) –available to solve problems and
4. Natural environment: promote progress between among and between societies. Its is
In natural environment we include geographical and through business technology reaches people. There are two
ecological factors. Both these factors are relevant to the functions of business in creation of customers those are
business. These factors include: Marketing and innovation. Marketing needs research based
1. Natural resources endowment. decisions where the research identifies the consumer needs and
2. weather and climate conditions provides information for target setting and programming the
3. Topographical factors. complete marketing effort.
4. location aspects Innovation may be defined as the technical industrial and
5. Port facilities etc. commercial steps which lead to the marketing of new
manufactured products and to commercial use of new technical
5. Demographic Environment: processes an equipment.
Demographic factors include: 1. Radical innovation: a basic technological innovation that
1. Size, growth rate, age composition, sex composition, establishes a new functionality (e.g., steam engine or
etc of population. steamboat)
2. Family size 2. Incremental innovation- a change in an existing technology
3. Economic stratification of population system that does not alter functionality but incrementally
4. Educational level improves performance features safety or quality or lowers
5. Caste, religion etc. cost.
3. Next generation technology innovation: a change in an
6. Technological environment; existing technology system that does not alter functioning


but dramatically improves performance feature safety or

quality or lowers cost and opens up new applications.

7. International environment:
Implications of global or international environment are
as follows:
 Due to liberalization Indian companies are forced to view
business issues from the global perspective.
 Safe and protected markets are o longer there world is
becoming small in size due to advanced means of transport
and communication facilities.
 Learning of foreign languages is a must for every business
 Acquiring familiarity with foreign currencies is also mist
 Facing political and legal uncertainties is inevitable.
 To survive amidst intense competition every businessman
should try to adapt his products to different customer needs
and tastes.

Environmental Analysis of Business Decision Making