Business Environment

What is business environment?

Business environment includes the climate or
set of conditions, economic, social, political or
institutional which have a direct or indirect
bearing on the functioning of business

It signifies external forces, factors and
institutions that are beyond the control of the
business and they affect the functioning of a
business enterprise.

Thus it is the set of external factors,
such as economic factors, social
factors, political and legal factors,
demographic factors, technical
factors etc., which are
uncontrollable in nature and
affects the business decisions of
a firm.


BUSINESS
DECISIONS
Economic
factors
Social
factors
Technological
factors
Demographic
factors
Legal factors
Political
factors
Features of business environment
a.Business environment is the sum
total of all factors internal & external
to the business firm that greatly
influence their functioning

b.It covers factors and forces like
customers, competitors, suppliers,
government, and the social, cultural,
political, technological and legal
conditions.
Continued

c. The changes in business environment are
unpredictable.

d. Business Environment differs from place to
place, region to region and country to
country. Ex: Political conditions in India differ
from those in Pakistan. Taste and values
cherished by people in India and China vary
considerably.

Importance of business
environment
Business environment is complicated and active
in nature and has a far-reaching impact on
the survival and growth of the business.

a. Determining Opportunities and Threats
b. Giving Direction for Growth
c. Continuous Learning
d. Image Building
Continued

e. Meeting Competition

f. Identifying Firms Strength and
Weakness: Business environment
helps to identify
Types of environment
Internal environment
External environment
Micro environment
Macro environment
ENVIRONMENT OF BUSINESS
Internal environment

Important internal factors which have a
bearing on the decisions of a business
firm are:
1. Value system
2. Vision, mission and objectives
3. Management structure and nature
4. Internal power relationship
5. Human resources
6. Company image
Value system


The value system of the founders and those
at the top has important bearing on the
choice of business, the mission and
objectives of the organization, business
policies and practices and is an important
factor contributing to success.
Vision, Mission & Objective
Ranbaxys mission: to become a research
based international pharmaceutical company-has
driven it to enter the foreign markets and
development.
Thus the business domain of the
company, priorities, direction of
development, business philosophy,
business policy etc, are guided by the
vision, mission and objectives of the
company.
Management structure & nature
Organizational structure, composition of board of
directors, extent of professionalisation of
management sometime delay decision making while
some others facilitate quick decision making.

Board of directors is the highest decision making
body and it overseas performance of the organization
and so its quality is very important.

The share holding pattern can also have important
managerial implications.
Internal Power Relationship
The amount of support the top management
enjoys from different levels of employees,
shareholders and board of directors have
important influence on the decisions and
their implementation.

For example: relationship between the
members of the board of director and
between CEO.
Human resources
The characteristics of human resources like
skill, quality, morale, commitment, attitude etc.
could contribute to the strength and weakness
of an organization

Ex: Some organizations find it difficult to carry
out restructuring or modernization because of
resistance by employees whereas they are
smoothly done in some others.
Company Image

While raising finance, forming joint ventures
or other alliances, soliciting marketing
intermediaries, entering purchase or sale
contracts, launching new products etc. the
image of the company matters the most.
Miscellaneous factors
Physical assets and facilities like production
capacity, technology and efficiency of the
productive apparatus, distribution logistics etc.,
affect competitiveness of a firm.

R&D, technological capabilities determine a
companys ability to innovate and compete.

Marketing resources like quality of marketing
men, distribution network etc. are important for
brand extension, new product introduction etc.
Continued.


Financial factors and policies,
financial position, capital structure
affect business performances,
strategies and decisions.
Continued.
7. Miscellaneous factors

Physical assets and facilities
R & D and technological capabilities
Marketing resources
Financial factors

External environment
Micro environment consists of the actors in
the companys immediate environment
that affect the performance of the
company. They are more intimately linked
with the company.

Macro environment consists of larger
societal forces that affect all the actors in
the companys micro environment.
Micro environment

Suppliers
Customers
Competitors
Marketing intermediaries
Financiers
Public

Suppliers: It has been observed that
India maintained indigenous stocks of 3-
4 months and imported stock of 9
months as against an average of a few
hours to two weeks in Japan.
Steps taken:
1. Vendor development
2. Backward integration
3. Removal of dependence on single
supplier
4. Move towards relationship marketing

Customers: In choosing the customer segments a
company should consider factors like;
1. relative profitability
2. dependability
3. stability of demand
4. growth prospects
5. extent of competition.
The business firm should not be dependent on a
single customer

With globalization Indians have become more
exposed to global competition.
Competitors: An implication of customer
demand is that a marketer should strive to
create primary and selective demand for its
products.


However many companies have restructured
their business portfolio and strategies.


Sellers market existed buyers market has
emerged.
Firms that aid a company in promoting,
selling and distributing its goods to final
portfolio constitute the marketing
intermediaries.

It includes agents, merchants who help the
company find customers or close sales
with the.


Choice of wrong marketing intermediary
may land up the business in heavy losses.


Financiers: Their policies, strategies,
attitudes, ability to provide non-financial
assistance are much more important than
the financing capabilities.
Public : A public is any group that has an actual
or potential interest in or impact on an
organizations ability to achieve its interests. Ex-
media, citizens, local public etc.

Companies affected by leading daily which tries
to bring down share prices of the company.

NGOs have been protesting against child labour,
cruelty against animals, environmental
problems, deindustrialization resulting from
imports etc.
However some of publics are opportunities
for the business when they can be used to
disseminate useful information.

Thus a company should have good
relation with local publics so that they can
work for mutual benefit.
Input
suppliers
Workers &
their unions
Public
Competitors
Marketing
intermediaries
Customers
BUSINESS
Micro environment
Macro environment

Economic environment
Political environment
Regulatory environment
Demographic environment
Technological environment
Natural environment
Global environment

Economic environment
Business is dependent on economic
environment for inputs.

Business is dependent on economic
environment for selling its finished goods.

Economists are supplying macro economic
forecasts to various industrial
establishments.
Political environment
It includes factors such as characteristics
and policies of the political parties, nature of
Constitution and government system relating
to business policies and regulations.

Important economic policies such as
industrial policy, policy towards foreign
capital and technology, fiscal policy and
foreign trade policy are often political
decisions.
Continued.
The government expenditure forms a
substantial percentage of GDP in the
developed and developing countries.

Government normally plays four
important roles in an economy in relation
to business
1. Regulatory role
2. Promotional role
3. Entrepreneurial role
4. Planning role
Regulatory environment
Government regulation of business may cover
1. Entry into business
2. Reservation of industries to small scale, co-
operative sectors, licensing system
3. Ceilings on profit margins, dividend
4. Restriction on intra-corporate investments
Government regulation may be broadly
divided into direct controls and indirect
controls.

Indirect controls-fiscal policy, monetary
incentives/disincentives.(eg-high import
duty)

Direct control-can be applied selectively
from firm to firm and industry to industry
Demographic environment
Demographic bases of market segmentation
include:
1. Age structure
2. Gender
3. Income distribution
4. Family size
5. Occupation
6. Education
7. Social class
8. Religion
9. Race
10. Nationality
Technological environment
Technology is one of the important
determinants of global competitiveness.
The type of technology in use, level of
technological developments, speed with
which new technologies are adopted and
diffused, appropriate technologies are
important for business.
Innovations may help companies to
increase market share, capture new
markets, create new market segments,
industries and markets.
Natural environment
Environment is the source and support of
everything used by businesses.

The geographical and ecological factors such
as natural resource endowments, weather and
climatic conditions, topographical factors,
locational aspects in the global context, port
facilities etc. are all relevant to business.

Continued.
Geographical factors influence
1. Location of certain industries
2. Choice of technology
3. Demand pattern

Depletion of natural resources,
environmental pollution and disturbance
of the ecological balance have caused
great concern.
Global environment
The global environment refers to those factors
which are relevant to business such as:

WTO principles and agreements
International conventions
Treaties, agreements, declarations, protocols,
economic
Sentiments in other countries, hike in crude oil
prices etc.
Ex-Indian pharmaceutical company is
affected by WTOs acceptance of product
patents.
Import and investment liberalizations
mandated by WTO has changed competitive
environment in India.
War or political tensions globally ,
uncertainties, strained political relations
between nations etc. affect business.
Developments in information and
communication technologies have significant
implication for business.
BUSINESS
ECONOMIC ENVIRONMENT
NATIONAL
GLOBAL
Macro environment
NON-ECONOMIC
ENVIRONMENT
Chapter 2
Business Ethics and
Social Responsibility
Explain the concepts of business
ethics and social responsibility.

Describe the factors that influence
business ethics.

List the stages in the development
of ethical standards.

Identify common ethical dilemmas
in the workplace.
Discuss how organizations shape
ethical behavior.

Describe how businesses social
responsibility is measured.

Summarize the responsibilities of
business to the general public,
customers, and employees.

Explain why investors
are concerned with
business ethics and
social responsibility.
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Business Ethics
The standards of conduct and moral values governing actions and
decisions in the work environment.
Social responsibility.
Balance between whats right and whats profitable.
Often no clear-cut choices.
Often shaped by the organizations ethical climate.
Sarbanes-Oxley Act
2002 law that added oversight for the nations major companies and a
special oversight board to regulate public accounting firms that audit
the financial records of these corporations.

High profile investigations
and arrests in headlines.
Vast majority of businesses
ethical.
New corporate officers
charged with deterring
wrongdoing and ensuring
ethical standards.
Johnson & Johnson Website
Individuals can make the difference in
ethical expectations and behavior
Putting own interest ahead of the
organization
Lying to employee
Misrepresenting hours
Safety violations
Internet Abuse
Technology is expanding unethical behavior
Situation in which a business
decision may be influenced
for personal gain.
Telling the truth and
adhering to deeply felt
ethical principles in
business decisions.
Businesspeople expect
employees to be loyal
and truthful, but ethical
conflicts may arise.
Employees disclosure
of illegal, immoral, or
unethical practices in
the organization.
Code of Conduct
Formal statement that
defines how the
organization expects
and requires
employees to resolve
ethical questions.
Codes of conduct
cannot detail a solution
for every ethical
situation, so
corporations provide
training in ethical
reasoning.
Helping employees
recognize and reason
through ethical
problems and turning
them into ethical
actions.
Executives must
demonstrate ethical
behavior in their
actions.
Social Responsibility
Managements consideration of profit, consumer
satisfaction, and societal well-being of equal value
in evaluating the firms performance.
Contributions to the overall economy, job
opportunities, and charitable contributions and
service.
Organizations measure through social audits.
Public Health Issues. What to do about inherently dangerous
products such as alcohol, tobacco, vaccines, and steroids.
Protecting the Environment. Using resources efficiently,
minimizing pollution.
Recycling. Reprocessing used materials for reuse.
Developing the Quality of the Workforce. Enhancing quality of
the overall workforce through education and diversity initiatives.
Corporate Philanthropy. Cash contributions, donations of
equipment and products, and supporting the volunteer efforts of
company employees.
The Right to Be Safe. Safe operation of products, avoiding product liability.
The Right to Be Informed. Avoiding false or misleading advertising and
providing effective customer service.
The Right to Choose. Ability of consumers to choose the products and
services they want.
The Right to Be Heard. Ability of consumers to
express legitimate complaints to the appropriate parties.
Workplace Safety. Monitored by Occupational Safety and Health
Administration.
Quality-of-Life Issues. Balancing work and family through
flexible work schedules, subsidized child care, and regulation
such as the Family and Medical Leave Act of 1993.
Ensuring Equal Opportunity on the J ob. Providing equal
opportunities to all employees without discrimination; many
aspects regulated by law.
Age Discrimination. Age Discrimination in Employment Act of
1968 protects workers age 40 or older.
Sexual Harassment and Sexism. Avoiding unwelcome actions
of a sexual nature; equal pay for equal work without regard to
gender.
Obligation to make profits for shareholders.
Expectation of ethical and moral behavior.
Investors protected by regulation by the
Securities and Exchange Commission
and state regulations.