http://www.pondiuni.edu.in/dde/downloads/h1040.pdf In today s globalised business world, change is probably the only aspect that is permanent.

Having said this, we may also point out a well established fact that the general mindset is to resist change. But to change and change for the better/for the worse is an inevitable process. An organization has to constantly reinvent itself, if it has to succeed. This objective can be put on ground, if organizations constantly scan the distant horizon and innovate. Looking inward and outward on a continuous basis is imperative, in view of the swift changes in the environment brought about by globalization, technological developments and a paradigm shift in socio-cultural, political, economic and legal issues. The ability of an organization to scan the horizon for reasonable and accurate forecast of the likely changes in the business environment and to dovetail its strategies in line with the perceived changes is a sine-qua-non for the success of an organization. The short point, which requires emphasis, is that an organization must be vigilant for changes in the business environment. The changes, which are bound to happen over time, contain several variables, which are often interconnected. Hence, such of those organizations, which are able to quickly recognise the interconnected variables and take proactive steps, are the ones which will remain competitive. This book not only provides an overview of various models being practiced by organizations to stay competitive, but also attempts to give an insight into the factors, which comprise the environment and the emerging trends in scanning the business environment. The book also includes cases, which detail the experiences by various organizations like GE, Nokia, POSCO, Pepsi, Asian Paints, Tata Motors etc. in scanning the business environment.

Business environment may be defined as the set of external and internal factors which
affects the decisions of business. We can divide business environment into two parts A. The Micro Environment of Business These are powers which are deeply related with company and company can control this type of environment by improving its capacity and efficiency. 1. Suppliers Suppliers are the persons who supply raw material to company. 2. Customers Customers are the persons who buy goods from company. 3. Market Intermediaries Market intermediaries are those persons who help company to sell its products. 4. Financial Intermediaries Financial intermediaries are those institutions who provide loan, credit and advance to company. 5. Competitors Competitors are those who also sell same product of company.

6. Public Public is those groups of people who can buy or who can show their interest to buy the products of company. B. The Macro Environment of Business Macro environment of business means all external factors which affects company and its business and there is no control of company on these factors. 1. Economic Environment In economic environment, we can include govt. budget, import and export policies, economic system and economic conditions. 2. Political and Governmental Environment In political and government environment, we can include legislature's decisions, executive's decisions and judiciary decision which affect company's business. 3. Socio cultural Environment Socio-cultural environment includes morality, religion, education, health of peoples and family importance. 4. Natural Environment In natural environment, we can include season, place elements, natural resources etc. 5. Demographic Environment In demographic environment, we can include size of population, growth rate of population, age composition, sex composition and family size. 6. Technological Environment In technological environment, we can include ecommerce technology, online payment, Internet technology, mobile banking and 3G technology and all other new technology which affect company's business. 7. International Environment In international environment, we can include rules and regulation of WTO, WB and MNC's affect on our company's business.

Business environment introduction.

A business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. Main Factors The main factor that affects most business is the degree of competition how fiercely other businesses compete with the products that another business makes. The other factors that can affect the business are: Social how consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population. Legal the way in which legislation in society affects the business. E.g. changes in employment laws on working hours. Economic how the economy affects a business in terms of taxation, government spending, general demand, interest rates, exchange rates and European and global economic factors. Political how changes in government policy might affect the business e.g. a decision to subsidise building new houses in an area could be good for a local brick works. Technological how the rapid pace of change in production processes and product innovation affect a business. Ethical what is regarded as morally right or wrong for a business to do? For instance should it trade with countries which have a poor record on human rights? Changing External Environment Markets are changing all the time. It does depend on the type of product the business produces, however a business needs to react or lose customers. Some of the main reasons why markets change rapidly: Customers develop new needs and wants. New competitors enter a market. New technologies mean that new products can be made. A world or countrywide event happens e.g. Gulf War or foot and mouth disease. Government introduces new legislation e.g. increases minimum wage.

Business and Competition Though a business does not want competition from other businesses, inevitably most will face a degree of competition. The amount and type of competition depends on the market the business operates in: Many small rival businesses e.g. a shopping mall or city centre arcade close rivalry. A few large rival firms e.g. washing powder or Coke and Pepsi. A rapidly changing market e.g. where the technology is being developed very quickly the mobile phone market. A business could react to an increase in competition (e.g. a launch of rival product) in the following ways: Cut prices (but can reduce profits) Improve quality (but increases costs) Spend more on promotion (e.g. do more advertising, increase brand loyalty; but costs money) Cut costs, e.g. use cheaper materials, make some workers redundant Social Environment and Responsibility Social change is when the people in the community adjust their attitudes to way they live. Businesses will need to adjust their products to meet these changes, e.g. taking sugar out of childrens drinks, because parents feel their children are having too much sugar in their diets. The business also needs to be aware of their social responsibilities. These are the way they act towards the different parts of society that they come into contact with. Legislation covers a number of the areas of responsibility that a business has with its customers, employees and other businesses. It is also important to consider the effects a business can have on the local community. These are known as the social benefits and social costs. A social benefit is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer. For example, the building of an attractive new factory provides employment opportunities to the local community. A social cost is where the action has the reverse effect there are costs imposed on the rest of society, for instance pollution. These extra benefits and costs are distinguished from the private benefits and costs directly attributable to the business. These extra cost and benefits are known as externalities external costs and benefits.

Governments encourage social benefits through the use of subsidies and grants (e.g. regional assistance for undeveloped areas). They also discourage social costs with fines, taxes and legislation.

Business Environment.
Generally speaking an environment includes the air we breathe, the water we drink, the available business, social and educational infrastructure in the locality, state and country etc. In the context of business the environment refers to the sum of internal and external forces operating on an organization. The managers must perforce recognize the elements, severity and impact of these forces on the organization. They must identify, evaluate and react to the forces triggered by the external environment. More often than not, these forces are beyond the control of an organization and its managers. Accordingly, the factors of the environment will need to be considered as inputs in the planning and forecasting models developed by an organization. It is quite possible that some large organizations themselves constitute a greater part of the business environment e.g. Public Sector Oil Companies in India. An organization operates within the larger framework of the external environment that shapes opportunities and poses threats to the organization. The external environment is a set of complex, rapidly changing and significant interacting institutions and forces that affect the organization's ability to serve its customers. External forces are not controlled by an organization, but they may be influenced or affected by that organization. It is necessary for organizations to understand the environmental conditions because they interact with strategy decisions. The external environment has a major impact on the determination of marketing decisions. Successful organizations scan their external environment so that they can respond profitably to unmet needs and trends in the targeted markets. The Organization as a System Internally, an organization can be viewed as a resource conversion machine that takes inputs (labour, 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. The organization must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities. The successful organization will identify, appraise, and respond to the various opportunities and threats in its environment. External Macro environment The 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. Though no controllable, these forces require a response in order to keep positive actions with the targeted markets. An organization with an environmental management perspective takes aggressive actions to affect the forces in its marketing environment rather than simply watching and reacting to it. 1. Economic Environment The economic environment consists of factors that affect consumer purchasing power and

spending patterns. Economic factors include business cycles, inflation, unemployment, interest rates, and income. Changes in major economic variables have a significant impact on the marketplace. For example, income affects consumer spending which affects sales for organizations. According to Engel's Laws, as income rises, the percentage of income spent on food decreases, while the percentage spent on housing remains constant. 2. Technological Environment The technological environment refers to new technologies, which create new product and market opportunities. Technological developments are the most manageable uncontrollable force faced by marketers. Organizations need to be aware of new technologies in order to turn these advances into opportunities and a competitive edge. Technology has a tremendous effect on life-styles, consumption patterns, and the economy. Advances in technology can start new industries, radically alter or destroy existing industries, and stimulate entirely separate markets. The rapid rate at which technology changes has forced organizations to quickly adapt in terms of how they develop, price, distribute, and promote their products. 3. Political and Legal Environment Organizations must operate within a framework of governmental regulation and legislation. Government relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of industries. The political environment includes governmental and special interest groups that influence and limit various organizations and individuals in a given society. Organizations hire lobbyists to influence legislation and run advocacy ads that state their point of view on public issues. Special interest groups have grown in number and power over the last three decades, putting more constraints on marketers. The public expects organizations to be ethical and responsible. An example of response by marketers to special interests is green marketing, the use of recyclable or biodegradable packing materials as part of marketing strategy. The major purposes of business legislation include protection of companies from unfair competition, protection of consumers from unfair business practices and protection of the interests of society from unbridled business behaviour. The legal environment becomes more complicated as organizations expand globally and face governmental structures quite different from those within the United States. 4. Demographic Environment Demographics tell marketers who current and potential customers are; where they are; and how many are likely to buy what the marketer is selling. Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistics. Changes in the demographic environment can result in significant opportunities and threats presenting themselves to the organization. Major trends for marketers in the demographic environment include worldwide explosive population growth; a changing age, ethnic and educational mix; new types of households; and geographical shifts in population. 5. Social / Cultural Environment Social/cultural forces are the most difficult uncontrollable variables to predict. It is important for marketers to understand and appreciate the cultural values of the environment in which they operate. The cultural environment is made up of forces that affect society's basic values, perceptions, preferences, and behaviours. U.S. values and beliefs include equality, achievement, youthfulness, efficiency, practicality, self-actualization, freedom, humanitarianism, mastery over the environment, patriotism, individualism, religious and moral orientation, progress, materialism, social interaction, conformity, courage, and acceptance of responsibility. Changes in social/cultural environment affect customer behaviour, which affects sales of products. Trends in the cultural environment include individuals changing their views of themselves, others, and the world around them and movement toward self-fulfilment, immediate gratification, and secularism.

6. Ecosystem Environment The ecosystem refers to natural systems and its resources that are needed as inputs by marketers or that are affected by marketing activities. Green marketing or environmental concern about the physical environment has intensified in recent years. To avoid shortages in raw materials, organizations can use renewable resources (such as forests) and alternatives (such as solar and wind energy) for non-renewable resources (such as oil and coal). Organizations can limit their energy usage by increasing efficiency. Goodwill can be built by voluntarily engaging in pollution prevention activities and natural resource. External Microenvironment The external microenvironment consists of forces that are part of an organization's marketing process but are external to the organization. These micro environmental forces include the organization's market, its producer-suppliers, and its marketing intermediaries. While these are external, the organization is capable of exerting more influence over these than forces in the macro environment. 1. The Market Organizations closely monitor their customer markets in order to adjust to changing tastes and preferences. A market is people or organizations with wants to satisfy, money to spend, and the willingness to spend it. Each target market has distinct needs, which need to be monitored. It is imperative for an organization to know their customers, how to reach them and when customers' needs change in order to adjust its marketing efforts accordingly. The market is the focal point for all marketing decisions in an organization. 2. Suppliers Suppliers are organizations and individuals that provide the resources needed to produce goods and services. They are critical to an organization's marketing success and an important link in its value delivery system. 3. Marketing Intermediaries. Like suppliers, marketing intermediaries are an important part of the system used to deliver value to customers. Marketing intermediaries are independent organizations that aid in the flow of products from the marketing organization to its markets. The intermediaries between an organization and its markets constitute a channel of distribution. These include middlemen (wholesalers and retailers who buy and resell merchandise). Physical distribution firms help the organization to stock and move products from their points of origin to their destinations. Warehouses store and protect the goods before they move to the next destination. Marketing service agencies help the organization target and promote its products and include marketing research firms, advertising agencies, and media firms. Financial intermediaries help finance transactions and insure against risks and include banks, credit unions, and insurance companies. Importance of understanding the environment. The managers job cannot be accomplished in a vacuum within the organization. There are a number of factors both internal as well as external which jointly affect managerial decisionmaking. It is therefore very important for the manager to understand and evaluate the impact of the business environment due to the following reasons: a)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 Taj) , state of competition ( Car manufacturing capacity presently in the country is far in excess of demand) etc. b) The present and future viability of an enterprise is impacted by the environment. For eg no

TV manufacturer can be expected to survive by making only B&W television sets when consumer preference has clearly shifted to colour television sets. c) The 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. d) The availability of all key inputs like skilled labour , trained managers , raw materials , electricity , transportation , fuel etc are a factor of the business environment. e) 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), and plastic bags (choking of sewer lines) have resulted in the slow decline of some industries. f) 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.

Changing profile of Indian economic environment

India gained independence in 1947 paving the way for national leaders of the Indian Government to build an economically independent new India. Policies between 1950-70 were implemented with a sincere belief in the efficacy of the socialist philosophy and political democracy. Heavy investment by government in Steel plants, atomic energy, and hydroelectric power and irrigation projects laid the foundation of a strong industrial edifice. The non-aligned movement at a time when the world was divided into two power blocks with cold war between the Super-powers prevented India from becoming a satellite of any other nation and enabled it to protect Its economy and the Indian Population. Indian economy has made great strides in the years since independence. In 1947 the country was poor and shattered by the violence and economic and physical disruption involved in the partition from Pakistan. The economy had stagnated since the late nineteenth century, and industrial development had been restrained to preserve the area as a market for British manufacturers. In fiscal year (FY) 1950, agriculture, forestry, and fishing accounted for 58.9 percent of the gross domestic product (GDP) and for a much larger proportion of employment. Manufacturing, which was dominated by the jute and cotton textile industries, accounted for only 10.3 percent of GDP at that time. India's new leaders sought to use the power of the state to direct economic growth and reduce widespread poverty. The public sector came to dominate heavy industry, transportation, and telecommunications. The private sector produced most consumer goods but was controlled directly by a variety of government regulations and financial institutions that provided major financing for large private-sector projects. Government emphasized self-sufficiency rather than foreign trade and imposed strict controls on imports and exports. In the 1950s, there was steady economic growth, but results in the 1960s and 1970s were less encouraging. Beginning in the late 1970s, successive Indian governments sought to reduce state control of the economy. Progress toward that goal was slow but steady, and many analysts attributed the stronger growth of the 1980s to those efforts. In the late 1980s, however, India relied on foreign borrowing to finance development plans to a greater extent than before. As a result, when the price of oil rose sharply in August 1990, the nation faced a balance of payments crisis. The need for emergency loans led the government to make a greater commitment to

economic liberalization than it had up to this time. In the early 1990s, India's postindependence development pattern of strong centralized planning, regulation and control of private enterprise, state ownership of many large units of production, trade protectionism, and strict limits on foreign capital was increasingly questioned not only by policy makers but also by most of the intelligentsia. But too much of protection from the Government had its own disadvantages. Our quality standards were not in tune with international competition. It had produced more traders than industrialists. It was high time that Indian economy became more open and entered the international market. India embarked on a series of economic reforms in 1991 in reaction to a severe foreign exchange crisis. Those reforms have included liberalized foreign investment and exchange regimes, significant reductions in tariffs and other trade barriers, reform and modernization of the financial sector, and significant adjustments in government monetary and fiscal policies. The reform process has had some very beneficial effects on the Indian economy, including higher growth rates, lower inflation, and significant increases in foreign investment. Foreign portfolio and direct investment flows have risen significantly since reforms began in 1991 and have contributed to healthy foreign currency reserves ($32 billion in February 2000) and a moderate current account deficit of about 1% (1998-99). India's economic growth is constrained, however, by inadequate infrastructure, cumbersome bureaucratic procedures, and
high real interest rates. India will have to address these constraints in formulating its economic policies and by pursuing the second generation reforms to maintain recent trends in economic growth. India's trade has increased significantly since reforms began in 1991, largely as a result of staged tariff reductions and elimination of non-tariff barriers. The outlook for further trade liberalization is mixed. India has agreed to eliminate quantitative restrictions on imports of about 1,420 consumer goods by April 2001 to meet its WTO commitments. On the other hand, the government has imposed "additional" import duties of 5% on most products plus a surcharge of 10% over the past 2 years. The U.S. is India's largest trading partner; bilateral trade in 1998-99 was about $10.9 billion. Principal U.S. exports to India are aircraft and parts, advanced machinery, fertilizers, ferrous waste and scrap metal, and computer hardware. Major U.S. imports from India include textiles and readymade garments, agricultural and related products, gems and jewelry, leather products, and chemicals. Significant liberalization of its investment regime since 1991 has made India an attractive place for foreign direct and portfolio investment. The U.S. is India's largest investment partner, with total inflow of U.S. direct investment estimated at $2 billion (market value) in 1999. U.S. investors also have provided an estimated 11% of the $18 billion of foreign portfolio investment that has entered India since 1992. Proposals for direct foreign investment are considered by the Foreign Investment Promotion Board and generally receive government approval. Automatic approvals are available for investments involving up to 100% foreign equity, depending on the kind of industry. Foreign investment is particularly sought after in power generation, telecommunications, ports, roads, petroleum exploration and processing, and mining. As India moved into the mid-1990s, the economic outlook was mixed. Most analysts believed that economic liberalization would continue, although there was disagreement about the speed and scale of the measures that would be implemented. It seemed likely that India would come close to or equal the relatively impressive rate of economic growth attained in the 1980s, but that the poorest sections of the population might not benefit. In the recent past, India has witnessed changes in several critical factors strengthening its economy. With globalisation becoming the key word of the 90's, it seems to have paved the way for India's entry in world markets. Economic reforms have been initiated to facilitate stabilisation and structural -adjustments essential for the growth of the economy.