BUSINESS

ENVIORNMENT
Business Environment

• Business environment is sum

total of all those factors,
conditions, situations or
Surroundings which directly
affect the working of business
 DEFINITIONS
• According to Keith Davis, "Environment of
the business means the aggregate of all
conditions, events and influences that surround
and affect it.“
• In the words of B. O. Wheeler, "Business
environment is the total of all things external
to firms and individuals which affect their
Organization and operations" 
 
 
 Why Do We Study Business
Environment
 
• Firms can identify opportunities and getting
the first mover advantage 
• Firms can identify threats and early warning
signals
• To Coping with rapid changes
• For Improving performance
• Meeting Competition
• Continuous Learning
• Identifying Firm’s Strength and Weakness
Types of business Enviornment
 INTERNAL ENVIRONMENT
IT determines the potential of a company to
meet the environmental challenges
These factors are :
• CULTURE
• STRATEGY
• IMAGE
• ORGANIZATIONAL
STRUCTURE
• HUMAN RESOURCE
 The Internal Environment
• Review current objectives, strategy &
performance
• Evaluate the availability of resources
• Understand the strengths &
weaknesses of your organizational
culture & structure
Micro environment
Supply chain management

Vendor development

manpower
material
suppliers of services

warehousing and storage

finance and credit

 customers
• Choosing a correct market segment is
very important
Competitors

Desire competition

Generic competition

product form
competition

Brand competition
 Intermediate Agencies
• Helpful in formulating and operationalising
the marketing strategy
Regulatory Agencies
Macro environment
 It refers to the general and overall
environment within which entity operates

The macro forces are generally more

uncontrollable than micro environment.
 THE MACRO ENVIRONMENT
The macro environment relates to:

 Political
Economic
Global Environment
Socio-Cultural
Technological  
Legal

These influences  may impact your business,

now or in the future.  
Macro Environment = General/Remote
Environment
• Success of an organization depends upon
its adaptability to the environment.

Example of cost of imported component

going up because of depreciation of the
domestic currency, solution may lie with
domestic manufacture of the component.
Political Enviornment
• It comprises political stability and the
policies of the government. Ideological
inclination of political parties, personal
interest of politicians, influence of party
forums etc. create political environment.
For example, Bangalore established itself
as the most important IT centre of India
mainly because of political support.
the policies related to government or
constitutional may affect the business.

For example, potential government legislation may allow

businesses to register that they do not want to receive unsolicited
calls. This may restrict cold calling on a business to business
basis.

.
A stable political system is a primary
factor for economic development
 ECONOMIC

Economic influences relate to the economy as a whole.

Rates of interest have an impact for example on

levels of borrowing.

The strength of the stock market has an impact on

ECONOMIC ENVIRONMENT
Econo Econo
Econo
mic mic
mic
Conditi Policie
ons s System

Level of income Industrial Policy

Capitalist Economy
Level of Saving
Monitory Policy
Level of Spending Communist Economy
Imports-Export
Policy
No. Of Suppliers
Mixed Economy
Extent of competition Trade Policy

Tax Policy
 Eg: Industrial policy ,1991
• Liberlisation
• Privatisation
• globalisation
 Liberalisation
It refers to the process of eliminating
unnecessary controls and restrictions
• (i) abolishing industrial licensing requirement
in most of the industries
• (ii) freedom in fixing prices of goods and
services
• (iv) simplifying the procedure for imports and
exports;
• (v) reduction in tax rates
• (vi) simplified policies to attract foreign
capital and technology to India
 Result
high growth rate, easy availability of goods
at competitive rates, a healthy and
flourishing stock market, high foreign
exchange reserve, low inflation
 Privatization
• It refers to reducing the role of public
sector by involving the private sectors
in most activities.
• Due to the policy reforms announced in
1991, the expansion of public sector
has literally come to a halt and the
private sector registered fast growth in
the post liberalised period.
 Globalisation
• It means ‘integrating’ the economy of a country
with the world economy. This implies free flow
of goods and services, capital, technology and
labour across national boundaries.
• .
• The government has adopted various
measures such as reduction in custom
duties, removal of quantitative restrictions
or quotas on exports and imports,
facilitating foreign investment and
encouragement of foreign technology
 Impact of Government Policy on
Business and Industry
• Increasing competition
• More demanding customers
• Rapidly changing technological
environment
• Necessity for change
• Threat from MNC
 Socio-cultural

• Culture may be defined as a some total of knowledge, belief,

art, morals, laws, customs and other capabilities and habits

acquired by individuals It also decides the type of goods and

services to be supplied, employer- employee relations

 The social environment reflects the
expectations of different social classes
operating in the society. It specify lifestyle,
social values, spending habits, social
awareness etc.
• For example, during festive seasons there
is an increase in the demand for new
clothes, sweets, fruits, flower, etc. Due to
increase in literacy rate the consumers are
becoming more conscious of the quality of
the products. Due to change in family
composition, more nuclear families with
single child concepts have come up. This
increases the demand for the different
types of household goods
TECHNOLOGICAL
Technological influences include

• use of the internet.

• advances in mobile
phones.
• Bluetooth.
• wireless networks.
• data management.
• customer relationship
management systems.
 c)
a)b) Technical
Technological
Facilities
State for
of domestic
Collaboration
orResearch
environment
indigenous and
technology,
Development,
consists of
s etc.
 Business enterprises have to analyse
technology environment, technology
options, cost-benefits of technology
alternatives, adopt and absorb new
technology, use it to collect data, design
product, improve productivity and finally
serve the consumer in a better way.
TECHNOLOGICAL FACTORS
Many businesses are
impacted today by
environmental issues.
Corporate social
responsibility is now
higher on the public's
agenda.
Organizations such as
Shell and Nike have
been affected by
adverse publicity
relating to
environmental issues.
 Legal Enviornment
• This refers to set of laws, regulations,
which influence the business organisations
and their operations. Every business
organisation has to obey, and work within
the framework of the law. The important
legislations that concern the business
enterprises include:
• (i) Companies Act, 1956
• (ii) Foreign Exchange Management Act,
1999
  
• The Working Time
Directive, Paternity
Leave and Minimum
Wage are examples of
this.

• In certain industries
there are legal
constraints imposed by
regulatory or watchdog
bodies.
The objectives of regulatory environment
is to prevent exploitation of consumers,
employees, investors, to ensure better
utilization of natural resources, to control
environmental pollution and finally
preserved the ecological balance.
The gaming industry is an example of one sector which has been
impacted by changes in the far external environment. Traditionally
betting shops such as William Hill have always been a 'horses and
dogs' business. As recently as 1999 this made up 80% of its
business. The proliferation of sports and topics that people can now
place bets on has led to huge changes in the world of gambling. 
The twin forces of technology and deregulation have also altered
things. Gamblers can now place bets on the internet, via interactive
TV, on WAP-enabled mobile phones, via high street shops or call
centers. Bookmakers now open on Sundays and in the evenings to
cater for different work and leisure patterns. There are proposals on
the table to further modernize the gambling laws in this country
which relate back to 1960s license and regulate the industry.
 MICROSOFT - A MONOPOLY?
• In the late 1990s, as Microsoft was preparing to enter the
new millennium, the company was fighting the anti-trust
proceedings initiated against it by the US government.
One of the main charges against Microsoft was that it was
distributing its Internet browser software, Internet
Explorer (IE), free of cost along with its Windows
Operating System. Microsoft was a late entrant into the
Internet software market. Subsequently, it adopted
aggressive marketing tactics to catch up with the early
entrant, Netscape Communications.
Netscape protested against Microsoft's move calling it an
attempt to shut out other software that competed on a
stand-alone basis. Another important charge against
Microsoft was that it had modified Sun Microsystems'
Java language in order to make it Windows compatible.
• Some analysts argued that the overwhelming market
share that Microsoft held was a major impediment to
innovations in the software industry. Microsoft was
not only a leading player, but also the standards
provider for the industry. By controlling the
standards, the company was in a position to curb
innovations. Microsoft, however, maintained that its
dominance of the market was due to its superior
products and not because of any unfair market
practices.

• In 2000, the US Department of Justice (DOJ) ruled

that Microsoft be split into two smaller companies to
prevent it from indulging in anti competitive
practices. However, in June 2001, the US Court of
Appeals reversed this ruling, but said that Microsoft
did have a monopoly in the market and had violated
US antitrust laws. In August 2001, Microsoft
appealed to the US Supreme Court to overturn the
ruling that Microsoft was an illegal monopoly. A final
verdict on the case was expected by October 2001.
 THE TRIAL BEGINS

• In October 1997, the DOJ began antitrust

investigations to determine whether Microsoft was
violating a 1994 consent decree by compelling PC
makers to ship its Internet browser free with
Windows 95.
• Joel I. Klein, Assistant Attorney General for the
antitrust division, remarked, "This kind of product-
forcing is an abuse of monopoly power--and we will
seek to put an end to it." Justice Thomas Penfield
Jackson of the US District Court heard the case and,
in May 1998, gave both the parties five months to
gather 12 witnesses each, and to fight the suit.
 Microsoft Antitrust Case
• ‘The government viewed Microsoft as a paranoid
monopolist, someone who gets up in the middle
of the night and shoots at any movement.’
 - Harry Edwards, Chief Judge, US District Court
for Appeals for the District of Columbia.

• "The Sun was definitely shining in Seattle.

Today's ruling really does go a long way toward
positively resolving this matter for Microsoft, for
our customers, partners, and shareholders."
- Steven Ballmer, CEO, Microsoft, commenting on
the US Court of Appeals for the District of
Columbia reversing the District Court ruling that
Microsoft be broken into two companies.