UNIT -1

BUSINESS ENVIRONMENT

-SUPRIYA MAHESHWARI
BUSINESS:

 Business may be defined as “ Human activity

directed towards producing or acquiring wealth
through buying and selling of goods”

 It includes:
-Production
-Sales
-Warehousing
-Transportation
-Banking and Insurance
BUSINESS ENVIRONMENT

“The aggregate of all the forces ,factors and

institutions which are external to and beyond the
control of an individual business enterprise but which
exercise a significant influence on the functioning and
growth of an individual enterprise.”

These forces includes:

Creditors, competition, Suppliers, Government, Socio

cultural organizations, Political Parties, International
Organizations etc
FEATURES:

 Aggregative
 Inter-Related
 Relative
 Inter Temporal
 Uncertain
ENVIRONMENT ANALYSIS:

“Environment Analysis is the process by which

organizations monitor their relevant
environment to identify opportunities and
threats affecting their business”

If a company is able to adapt to its environment ,it would be

successful in long run but if fails to adapt according to
environment might fail in long run
Process Of Environment Analysis:
 It consists of 4 Steps:

STEP 1 SCANNING:
●

●
It involves general study of various environmental factors.

STEP 2
●
MONITORING
●
The purpose of monitoring is to assemble sufficient data to find
whether certain trends and pattern are changing

STEP 3
●
FORECASTING
●
Forecasting is concerned with developing projections of direction ,
scope and intensity of environment change.

STEP 4 ASSESSMENT
●

●
IT involves drawing up possible impacts.
BENEFITS OF ENVIRONMENTAL
ANALYSIS:

 First Mover Advantage

 Early Warning Signals
 Customer Focus
 Strategy Formulation
 Public Image
 Continuous Learning

 For eg Maruti Udyog in early 90’s became the first leader in

small car market in India as it was to recognize the need of
small car.
 Various FMCG Companies Launches small Sachets of
Shampoo in INDIA.
TYPES OF ENVIRONMENT
Types Of Environment

Internal External
(factors
(factors internal
internal to
to firm,
firm, Controllable
Controllable Factors)
Factors) (factors
(factors external
external to
to firm,
firm, uncontrollable
uncontrollable factors)
factors)

 Micro Environment
(Customers,Suppliers,
(Customers,Suppliers, Market
Market Intermediaries,
Intermediaries, Competitors,
Competitors, Public
Public

 Macro Environment
(Economic,
(Economic, Political,
Political, Social,Technological,
Social,Technological, Legal,International
Legal,International ,,
Natural)
Natural)
ECONOMIC ENVIRONMENT

It includes:

 Nature of Economy: Developed, developing and under

developed

 Economic Policies: Budget, Industry policy, Foreign Exchange

policy, Fiscal and Monetary Policies,Trade Policies.

 Economic Conditions: GDP, Unemployment, Inflation, Interest

Rates etc

 Economic System: Capitalist, Socialist and Mixed

NON ECONOMIC ENVIRONMENT

Various Non Economic Environment Includes:

 Political
 Legal
 Socio Cultural
 International
 Natural
POLITICAL ENVIRONMENT

Political Environment comprises of Political parties,

their Ideology, Type of Government, stability of
government, government policies etc

 Political Organizations
 Political Stability
 Foreign Policy
 Defence Policy
Legal Environment

The various laws influencing business may be classified as :

 General Laws- eg Contract Act, Sales and Goods Act etc

 Financial Laws-eg SEBI Act, FEMA Act etc

 Labour Laws- eg Payment of Wages Act etc

 Taxation Laws-eg Income Tax Act , Sales Act Tax

 Other Laws-eg Partnership Act, Companies Act

SOCIO CULTURAL ENVIRONMENT

It includes various factors such as:

 Attitude of People
 Size and Role of Family
 Religion
 Literacy Level
 Population and composition of population
 Ethical Issues

Eg: Poor countries with small population are not attractive for business.

With declining Birthrate in many states , the market for baby products
has a negative affect.
NATURAL / PHYSICAL ENVIRONMENT

Various geographical and natural factors:

 Availability of Resources

 Weather and Climatic Condition

 Nearness to Port facilities
 Locational Aspects

Ecological factors have recently assumed great importance.

The depletion of natural resources, environmental pollution
have caused great concern. Various Environment Policies
have caused great concern for Business
TECHNOLOGICAL ENVIRONMENT

 Nature of Technology
 Scope of Innovation
INTERNATIONAL ENVIRONMENT

 Economic Condition
 Technology
 Legal Environment
 International organizations such as World

Bank etc
INTERACTION BETWEEN BUSINESS
AND ITS ENVIRONMENT

 A business is an open system that continuous

interact with its environment.

 Business gets influenced by the environment

and in turn may also influence the
environment.
 Business and environment interacts in following
ways:

1. Exchange of information
(Business need to collect information about market
conditions, technology development, competitors strategy
etc and in turn need to transmit information relating to its
activities to customers and several external agencies.)

2. Exchange of resources
(Business firm requires finance , materials, manpower,
technology and other inputs to produce goods and
services. Business is also dependent on the external
environment for disposal of its output. )
TYPES OF ECONOMY:
Economy is of 3 types:

 Capitalist Economy
 Socialist Economy
 Mixed Economy

 On the basis of Level Of growth Economy can

be divided into :
- Developed Economy
-Developing Economy
Capitalist Economy
 Capitalism is an economic system in which the means of
production and distribution and industry are privately owned
and operated for a private profit.

 Decisions regarding supply, demand, price, distribution, and

investments are made by private sectors in the market .

 Private ownership in capitalism implies the right to control

property, including determining how it is used, who uses it,
whether to sell or rent it, and the right to the revenue generated
by the property.

 Profit making is the main Motive.

 Prices are completely based on market demand and
supply.

 There is little or no intervention of government.

 It helps in increasing Competition and hence

improves the productivity.
Criticism of Capitalist Economy

 Thereis general agreement that capitalism

encourages economic growth.

 However, it was criticized as it lead to

significant differences in income and wealth.

 It leads to exploitation of working class.

Socialist Economy
 Socialist economy is a structure of the economy which
aims at providing greater equality and giving the working
class greater ownership over the means of production.

 Means of production owned by the state or by the

workers collectively.

 Production in a socialist economy is "planned" or

"coordinated", and does not suffer from the business
cycle

 Prices for allocation of goods and services were

predetermined by the state.
 Social Welfare is the main objective.

 Prices are determined by the government.

 It is a system of production where goods and

services are produced directly for use, in contrast
to a capitalist economic system, where goods and
services are produced to generate profit.
Criticism of Socialist Economy

 Socialist economy is a structure of the economy

which aims at providing greater equality.

 However, the socialist states were later deemed

to be corrupt with government having too much
power and with excessive state controls that
lead to corruption.
Mixed Economy

 A mixed economy is an economy that includes a

variety of private and government control, or a
mixture of capitalism and socialism.

 Mixed economy includes : a degree of private

economic freedom (including privately owned
industry) intermingled with government regulation
(which may include regulation of the market for
environmental concerns, social welfare or efficiency,
or state ownership and management of some of the
means of production for national or social objectives).
Thanking You…..