Business Environment

1. Business Environment By:- Ranjana Singh Asst. Prof. of Mgmt, UWSL

2. Business • Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit. ~ Aswathappa & Reddy

3. Purpose of Business • Business may be in simple words understood as organized efforts of enterprise to supply consumers with goods and services for a profit. • However the purpose of business is not earning profits only. • Business is an important institution in society for the supply of goods and services. • Business helps in Creation of job opportunities. • Business offers better quality of life. • Business contributes to the economic growth of the country.

4. Scope of Business • Business includes all the activities connected with:- • Production • Trade • Banking • Insurance • Finance • Agency • Advertising • Packaging

5. Business Environment • “Environment factors of constraints are largely if not totally external and beyond the control of individual industrial enterprises and their arrangements. These are essentially the ‘givers’ within which firms and their managements must operate in a specific country and they vary, often greatly from country to country”. ~ Barry M. Richman and Melvyn Copen • “ The environment includes outside the firm which can lead to opportunities for or threats to the firm. Although, there are many factors, the most important of the sectors are socio–economic, technical, supplier, competitors, and government.” ~ Glueck and Jauch

6. Importance of Business Environment:- • Determining Opportunities and Threats • Giving Direction for Growth • Continuous Learning • Image Building • Meeting Competition • Identifying Firm’s Strength and Weakness

7. Features of Business Environment:- • Totality of external forces • Specific and general forces • Dynamic nature • Uncertainty • Inter-related components

8. Types/Components of Business Environment- • Business Environment has two components: 1. Internal Environment 2. External Environment

9. Internal Environment “The internal environment is the environment that has a direct impact on the business and are generally controllable because the company has control over these factors”.

10. Internal Factors • The factors which directly effect the internal environment of the business are:- 1. Value System 2. Mission, Vision & Objectives 3. Management structure and Nature 4. Human Resource 5. Company Image and Brand Equity 6. The financial strength of the organization 7. The assets owned by the company 8. The Marketing resources & setup 9. The focus on research & development

11. Features of External Environment • Include the factors external to the environment which are not in the control of the business. • Two types External Environment on the basis of impact on the firm:- 1. Micro Environment 2. Macro Environment

12. Micro Environment • Also known as Task Environment or Operating Environment. • Consists of factors in the Company’s immediate environment that affect the performance of the company:- 1. Supplier 2. Competitor 3. Customers 4. Distributors 5. Public • Micro forces not necessarily affect all the firms in a particular industry in the same way.

13. Suppliers • Uncertainty regarding the supply often compel companies to:- 1. Maintain high inventories causing cost increase. 2.Vendor development. 3.Vertical Integration. E.g. Nirma 4.Multiple sources of supply

14. Supply chain in the business

15. Customers • Company may have different categories of customers like individuals, industries and government institutions. • Depending upon single customer is often too risky. • Choice of the customer segment should be based on various factors like relative profitability, dependability, stability of demand. Growth prospects and extent of competition. • Loyalty cards, frequent flyer programmes and frequent shopper incentives are all aimed at rewarding customers who buy a firm's product regularly • Growing globalization has made the customer’s more “global” in their shopping.

16. Competitors • Competitors of a firm is not only the firm producing same or substitute product but has enlarged. • The competition shrinks from Generic competition to Product form competition and the ultimately to Brand Competition. • Whenever entering in new market firm should study and ensure proper knowledge on five forces Model given by Micheal Porter.

17. Porters Five Forces Model

18. Distributors • The distributors used will determine the final price of the product and how it is presented to the end customer. • E.g. 1.Dell computers and Amazon (Reduced Cost by direct selling) 2.Retailer has control over where the products are displayed, how they are priced and how much they are promoted in-store. • To get proper deal with distributors requires good negotiating skills and offering appropriate incentives.

19. Public • The group which help organization to generate the financial resources, creating the image, examining the company policy and developing the attitude towards the product. • Types of Public are:- 1. Media Public 2. General Public 3. Citizen Action Group

20. Macro Environment:- • The factors which can have a major impact on the actors in the Micro/Task environment. • According to Philip Kotler- “Macro Environment includes forces that create opportunities and pose threats to the business units. It includes economic, demographic, natural, technological, political and cultural/social environment”

21. Political Environment • Two basic Political Philosophies – 1. Democracy- Political arrangement in which supreme power is vested in the people. (E.g. India) 2. Totalitarianism- • Also called Authoritarianism. • Individual freedom is completely subordinated to the power of the state & concentrated in the hands of one person or in a small group. • (E.g. Hitler’s Nazi’s rule Germany, and in current North Korea, Cuba)

22. Three vital institutions in India political System:- • Legislature (Vested with powers of policy making, law making) • Executive or Government (Maintenance of order, Money and credit, Orderly growth, Infrastructure, Assistance to Sick Industries etc.) • Judiciary (To settle down legal disputes)

23. Government plays four important role:- • The Regulatory Role • The Promotional Role • The Entrepreneurial Role • The Planning Role

24. Political/Government Environment • Political Ideology of the Government • Political Stability in the country • Relation of our nation with other country • Defense and military policy • Welfare activities of the government • Centre State relationships

25. Social/Cultural Environment • Attitude of people towards work • Family System • Caste System • Religion • Education • Habits and preferences • Languages • Urbanization • Customs and Traditions • Value System • Business Ethics

26. Technological Environment The impact of technology can be found under three heads:- • Technology and Social Change (Technology reaches people through business, High expectations of Consumers, social change etc) • Economic effects of technology (Increased productivity, Expenditure on R&D, Increased regulation and stiff opposition, Business boundaries redefined etc) • Technology & plant level changes(Organization structure change, TQM, E-commerce, FMS etc)

27. Technological Environment The important factors that determine the technological dynamics of a company includes:- • Innovative drive of the company • Customer needs/expectations • Demand Conditions • Suppliers’ offerings • Competitive Dynamics • Substitutes • Social Forces • Research Organizations (ICSR,CFTRI,DFRL etc)

28. Demographic Environments • Size of population and population growth • Age Composition • Gender Mix • Educational Level • Family Size and Structure • Economic Stratification of population. • Urban-Rural Population.

29. Natural Environment • Climatic conditions • Availability of Natural Resources • Topographical Factors • Pollution Controls

30. International Environments • Globalization ( E.g. LPG in 1992 in India) • Global financial Crisis ( E.g. Financial Crisis in USA) • International Agreements and declarations (E.g. Declarations by WTO, BASEL-I,II,III Etc) • International Terrorism ( E.g. Attack on World Trade Centre in America leading ) • Cultural Exchange (E.g. Learning Foreign Language and knowing foreign language is a must)

31. Multinational Corporations A multinational corporation (MNC) is a business with extensive international operations in more than one foreign country.

32. Environmental Analysis for Business • Four step process:- • Scanning • Identify early signals of possible environmental change • Detect environmental change already under way. • Fundamental challenge for analysis in scanning is to make sense out of vague, ambiguous and unconnected data.

33. Environmental Analysis for Business • Monitoring:- Three outcomes emerge out of monitoring-- • Specific description of environmental trends and patterns to be forecast. • The identification of trends for further monitoring. • The identification of areas for further scanning. These outputs become inputs for forecasting.

34. Environmental Analysis for Business c) Forecasting:- • Concerned with developing plausible projections of the direction, scope & intensity of environmental change. • It tries layout the evolutionary path of anticipated change. • Eg. - How long will it take the new technology to reach the market place? - Are current life style trends likely to continue?

35. Environmental Analysis for Business d) Assessment:- • Involves identifying & evaluating how & why current & projected environmental changes affect or will affect strategic management of the organization. • Tries to answer question such as what are the key issues presented by the environment, and what are the implications of such issues for the organization?

36. PESTEL Model • PESTEL stands for Political, Economic, Social, Technical, Environment and Legislative. • It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization.

37. Diagrammatic Representation

38. SWOT Analysis • The SWOT model is based on identifying the organizations internal strengths and weaknesses and external threats and opportunities and consequently identifying the companies’ distinctive capabilities and competencies and key success areas.

39. SWOT Analysis

40. Corporate Social Responsibility • Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. ~By Lord Holme and Richard Watts • A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. ~ By European Commission

41. Areas of Social Responsibility

42. Arguments in favor of Social Responsibility • Long term self-interest of business • Ascertain law and order • Maintenance of free enterprise • Creation of society • Moral justification

43. Arguments against Social Responsibility • Cost of social action is passed on to consumers • Lack of Standard • Undue use of power

44. Business Ethics • ‘Ethics’ can be defined as Moral principles that govern a person’s behavior or the conducting of an activity. ~ Oxford Dictionaries • Business Ethics is the applied ethics discipline that addresses the moral features of commercial activity. 

45. The significant principles included in business ethics are:- • Fairness • Integrity • Commit to agreements • Broad-mindedness • Considerateness • Importance to human esteem and self-respect • Responsible citizenship

46. Encouraging Ethical Behavior • Government’s role. (E.g. Enforcing stringent legislations) • Trade Associations. (E.g. Providing Guidelines) • Individual Companies. (Establishing code of ethics, Comprehensive ethics programme to improve organizations ethical climate)