BUSINESS ENVIRONMENT

business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as 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

 Characteristics / Nature of Modern Business

Large size Oligopolistic character Diversification Global reach Technology orientation Change

 Environment of Business Environment by definition is something external to an individual or an organization. Business environment refers to all external factors which have direct or indirect bearingon the activities of business. The business environment is divided into: Internal environment External environment: Micro environment, Macro environment

 Internal Environment Business Micro/ macro ExternalEnvironment

Value system, goals and objectives, management structures, Relationship among the various constituents, physical assets, technological capabilities and human financial and marketing resources make the internal environment of business

 External Environment External environment of business consists of institutions, organizations and forcesoperating outside the company. External environment can be classified into: Micro Environment Macro Environment

 (1) Micro environment The micro environment refers to such players whose decisions and actions have a direct bearing on the company. Since modern business broadly has two aspects, viz., Productionand selling of goods, the micro environment of business can be divided accordingly.The most prominent performers in the micro environment are: Suppliers of inputs Workers and their unions Customers market intermediaries Competitors Publics

 (2) Macro environment Macro environment comprises large societal and physical forces which affect the company and also the players in the company s micro- environment. Macro environment of a company refers to all those economic and non- economic factors which exercise their influence on the business activity in general and thus determine opportunities that a company may have to promote its business . Macro environment can be classified into: Economic environment Non-economic environment

 Economic Environment Since business is basically an economic activity, economic environment of business both national and global is of strategic importance. In the economic environment of the country, country s economic system, macroeconomic scenario , phase of business cycle through which the company is passing, organization of the financial system and economic policies of the government are the most important elements.

1.Economic System a. Capitalism b. Socialism 2. Macro-economic Scenario a. High rates of growth b. Inflation c. High rates of savings and investment d. Fiscal imbalance e. Balances of payments f. Deficits Phases of business cycle a. Prosperity b. Recession c. Depression d. Stagflation

Financial SystemEconomic Policies Industrial policyb. Trade policyc. Monetary policy Fiscal policy

 Non-Economic Environment The non- economic environment of business can be classified as: Political environment Legal environment Socio-cultural environment Demographic environment Technological environment Natural environment

 (b) Legal Environment The governments sets the legal framework within which business operate. Legislations defining property and business organizations, laws of contracts and bankruptcy, mutual obligations of labour and management and a multitude of laws and regulations constraining the way business activities are carried out constitute legal environment of business. Economic legislations, as these, are often called, have a direct bearing on the business. Economic legislations can be classified into two categories: Legislations which have a facilitatory role. Ex: The Contract Act provides the rules for systematic exchange transactions. Legislations which are restrictive in nature. Ex: MRTP Act and FERA.

 c) Socio-cultural Environment The Social environment is made up of the attitudes, desires, expectations, degrees, of intelligence and education, beliefs and customs of people in a group or a society . Culture is the heart of a particular group or society what is distinctive about the way members interact with one another and with outsiders and how they achieve what they do. Socio-cultural environment is made up of attitudes, desires, expectations, beliefs, faiths, customs of people besides their set of material practices through which people produce goods and services that they need for satisfying their wants. Globalization of culture Multiculturalism a. Casteb . Racec . Ethnic issues

 Demographic Environment Demographic factors like the Size and Growth rate of population, Life Expectancy, Ageand sex composition of population, Work participation rate, Employment status, Rural-urban distribution, Educational levels, Religion, Caste, Ethnicity and Language are allrelevant to business. Some of the issues are: Size and growth of population4 Age structure of population Urban-rural population Burden of population on environment