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.

Business environment is the sum total of all factors internal & external to the business firm that greatly influence their functioning

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

The changes in business environment are unpredictable.

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.

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

Determining Opportunities and Threats Giving Direction for Growth Continuous Learning Image Building Meeting Competition Identifying Firm’s Strength and Weakness: Business

environment helps to identify

Types of environment

Internal environmentInternal environment External environment External environment

Micro environmentMicro environment

Macro environmentMacro environment

ENVIRONMENT OF BUSINESS

Important internal factors which have a bearing on the decisions of a business firm and which are generally controllable because the company has control over these factors:

Value system Vision, mission and objectives Management structure and

nature Internal power relationship Human resources Company image

The internal environment is the environment that has a direct impact on the business.

Ranbaxy’s 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.

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.

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.

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.

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.

Micro environment consists of the actors in the company’s 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 company’s micro environment.

o Micro environment

SuppliersCustomersCompetitorsMarketing intermediariesFinanciersPublic

Suppliers:

An important force in the micro environment of a company is the suppliers, i.e., those

who supply the inputs like raw materials and components to the company. The importance of reliable source/sources of supply to the smooth functioning of the business is obvious.

Customers:

The major task of a business is to create and sustain customers. A business exists

only because of its customers. The choice of customer segments should be made by considering a number of factors including

the relative profitability, dependability,stability of demand, growth prospects and

the extent of competition.

The business firm should not be dependent on a single customer

Competitors:

Competition not only include the other firms that produce same product but also those firms which compete for the income of the consumers the competition here among these products may be said as desire competition as the primary task here is to fulfill the desire of the customers.

Marketing Intermediaries

The marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. The marketing intermediaries are vital links between the company and the final consumers .

Financiers:

The financiers are also important factors of internal environment. Along with financing

capabilities of the company their policies and strategies, attitudes towards risk , ability to

provide non-financial assistance etc. are very important.

Public :

A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its interests. Ex-media, citizens, local public etc.

NGOs have been protesting against child labour, cruelty against animals, environmental problems, deindustrialization resulting from imports etc.

Input suppliers

Workers & their unions

Public

Competitors

Marketing intermediaries

Customers

BUSINESS

Macro environment

Economic environment Political environment Technological environment Social environment Global environment

Economic environment refers to the aggregate of the nature of economic system of the country, business cycles, the socio-economic infrastructure etc.

The successful businessman visualizes the external factors affecting the business, anticipating prospective market situations and makes suitable to get the maximum with minimize cost.

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.

The business in a country is greatly influenced by the technological development.

The technology adopted by the industries determines the type and quality of goods and

services to be produced and the type and quality of plant and equipment to be used.

Technological environment influences the business in terms of investment in technology,consistent application of technology and the effects of technology on markets.

The social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the business.

Sociological factors such as costs structure, customs and conventions, mobility of labour etc. have farreaching impact on the business. These factors determine the work culture and mobility of labour, work groups etc.

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.

BUSINESS

Macro environment