Introduction To Business Environment

Here's 'Introduction to Business Environment'- from Business Environment-Semester 2. Happy Learning!

1. PROF. KARISHMA SHETTY Introduction to Business Environment

2. What Is Business Environment? Organizations do not exist in a vacuum. Many factors enter into the forming of a company’s strategy. The forces, conditions, situations, events etc. that impacts the organization are referred to collectively as the organization’s environment. The environment of any organization consists of aggregate of all conditions, events and influences that surround and affect it. Business Environment is complex as well as dynamic in nature. Karishma Shetty

3. Business Environment is the sum total of all external and internal factors that affect the functioning of organization. It refers to the conditions, forces, events and situations within which business enterprises have to operate. Business environment refers to different forces or surroundings that affect business operations. Such forces include customers, competitors, suppliers, distributors, industry trends, substitutes, regulations, government activities, the economy, demographics, and social and cultural factors. Others are innovations and technological developments. Karishma Shetty

4. A firm’s environment consists of internal environment (controllable) and external environment (uncontrollable). Important decisions of the business such as: • What business to do? • Which customer segments to be targeted? • Where and When to do the business? • How to do the business? • How to expand the business? All these factors are influenced by the business environment Karishma Shetty

5. Features of Business Environment Environment is inseparable part of business Environment is dynamic Business lacks control over environment Internal and external factors Environment is complex Environment is multifaceted (viewed differently by different people) Opportunities and obstacles Regulates the scope of business Long lasting impact Uncertainty Karishma Shetty

6. Image Building Meeting Competition Identifying Firm’s Strength and Weakness Significance of Business Environment Pro Premium Continuous Learning Determining Opportunities and Threats Giving Direction for Growth Karishma Shetty

7. INTERRELATIONSHIP OF BUSINESS ENVIRONMENT Organisations have certain goals, missions, objectives and strategy to achieve them. Business environment has a bearing on shaping all the inter related and integral elements. The first step is SWOT analysis that helps in assessment of external and internal environment. The external environment has two components, viz., opportunities and threats and internal environment viz., strengths and weakness of the organisations. Karishma Shetty

8. Types of Business Environment Internal Environment External Environment Macro/General Environment Micro/Operating Environment Karishma Shetty

9. BUSINESS ENVIRONMENT CAN BE BROADLY DIVIDED INTO TWO COMPONENTS: 1) Internal Environment: It includes the factors that are controllable and hence can be modified and altered by the organization. 2) External Environment: External environment is an attempt to understand the outside forces of the organisational boundaries that are helping to shape the organisation. It includes those factors which are beyond the control of business enterprise It is of two types: a) Micro/Operating Environment: b) Macro/General Environment: Karishma Shetty

10. Factors of Internal Environment Vision, Mission and Objectives R&D Facilities Lorem ipsum Corporate Image Physical and Financial Resources Internal Relations Plans and Policies Lorem ipsum Value System Management Structure Human Resources Marketing Resources Karishma Shetty

11. Micro/ Operating Factors of External Environment Suppliers Market Intermediaries Competitors Public Customers Karishma Shetty

12. Macro/ General Factors of External Environment Political and Government Environment Socio-Cultural Environment Legal Environment Technological Environment Demographic Environment Natural Environment Economic Environment Ecological Environment Karishma Shetty

13. Macro/ General Factors of External Environment Karishma Shetty

14. The political environment is one of the less predictable elements in an organisation’s business environment. It includes the effects of pressure groups who seek to change government policies. It plays a very crucial role in strategic management of the business because: Political decisions inevitably affect the economic environment. Political decisions also influence the social and cultural environment of a country. Politicians can influence the pace at which new technologies appear and are adopted. Political Environment Business decisions are greatly influenced by the developments in the political environment. The political environment including the characteristics and policies of the political parties, the nature of constitution and government system and the government environment encompassing the economic and business policies and regulations are among the factors of utmost importance in the market selection and business strategy formulation Karishma Shetty

15. Political Ideology of the government Political Stability Relation of the government with other countries Centre-State Relationship Welfare activities of the government Factors of Political Environment Karishma Shetty

16. Industry and business depend heavily on economic environment. The economic environment has much to do with the scope of business, business prospects and the business strategy. The survival of business and industry mainly depends on the purchasing power of the people and purchasing power is largely a product of economic environment. The nature and level of development of the economy, economic resources, size of the economy, economic policies, economic conditions, supply and demand conditions etc. are all the factors relevant to the business. Some of the factors of economic environment are: The economic structure adopted by the country (capitalist, socialist or mixed economy). The economic policies (Industrial Policy, Fiscal Policy, Monetary Policy). Economic planning (five year plans, annual budgets etc.) Infrastructural facilities like banks, insurance companies, transportation methods, financial institutions etc. Economic indices like money supply, disposable personal income, savings rate, exchange rate, income distribution etc. Economic Environment Karishma Shetty

17. Distribution Of Income Mixed Economy Market Share Industrial growth Economic policies Price level Rate of Capital Formation Economic systems Economic Conditions Capitalism Income Level Trade Cycles Socialism Factors of Economic Environment Karishma Shetty

18. 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. (iii) The Factories Act, 1948. (iv) Industrial Disputes Act, 1972. (v) Payment of Gratuity Act, 1972. (vi) Industries (Development and Regulation) Act, 1951. (vii) Prevention of Food Adulteration Act, 1954. (viii) Essential Commodities Act, 2002. Legal Environment (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969. (xi) Trade Marks Act, 1999. (xii) Bureau of Indian Standards Act, 1986. (xiii) Consumer Protection Act, 1986. (xiv) Environment Protection Act. (xv) Competition Act, 2002. Karishma Shetty

19. Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. For example, in USA and many other countries electrical appliances are designed for 110 volts. But when these are made for India, they have to be of 220 volts. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organisations. Nowadays in fact, no firm can afford to persist with the outdated technologies. Karishma Shetty

20. Research and Development Product Technology Modernization Innovation Factors of Technological Environment Karishma Shetty

21. Demographic Environment: This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps. Karishma Shetty

22. Natural Environment: The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector. Karishma Shetty

23. Natural Environment is composed of 01 02 03 Languages 04 05 Urbanization Education Availability of natural resources Weather and climatic conditions Karishma Shetty

24. Socio-Cultural Environment: The social environment consists of the sum total of a society’s beliefs, customs, practices and behaviours. Every society constructs its own social environment. Some of the customs, beliefs, practices and behaviours are similar across cultures, and some are not. The social environment of a business can be integral to its success or failure. The influence exercised by social and cultural factors that are not within the control of business is known as socio-cultural environment. These factors include: attitude of people to work, family system, caste system, religion, education, marriage etc. Examples: (1) Nestle brews a very large variety of instant coffee to satisfy different national tastes. (2) McDonalds does not serve beef and pork products in the Indian markets. Karishma Shetty

25. Business Ethics Family System Attitude of people towards work Education Urbanization Habits and Preferences Value System Caste System Religion Composition of Socio-Cultural Environment Customs and Traditions Karishma Shetty

26. ECOLOGICAL ENVIRONMENT: There are many ways that businesses can reduce the negative effects of their operations and work with stakeholders to promote more environmentally friendlier practices. To minimise damage to the environment, businesses must consider the following objectives: Reduce carbon emissions. Produce or use lead free fuels and other ‘greener’ sources of energy incorporating cleaner production methods in new buildings, plants etc. Improve industry recycling programmes Encourage energy management schemes Offer free long-life shopping bags or other bio-sensitive packaging of products Ask staff for ideas Promote customer awareness and participation Publish literature such as sustainability reports Donate money for environmental projects that directly affect their stakeholders Fund or sponsor education programmes Provide recycling facilities Tree planting and urban regeneration schemes Karishma Shetty

27. Micro Environment Macro Environment The environment which is close to business and affects its capacity to work is known as Micro or Operating Environment. It consists of all the factors that create opportunities and pose threats to business units. It consists of suppliers, customers, market intermediaries, competitors and public. It consists of Political environment, social and cultural environment, economic environment, legal environment and technological environment. It consists of controllable factors It factors consists of uncontrollable It has specific elements It has general elements It influences prospects of a particular firm, the firm can influence them with some efforts. It comprises of those forces which influence all the business firms operating in an economy. Difference between Internal and External Environment Karishma Shetty

28. National & Global Trends Karishma Shetty

29. India has undergone a paradigm shift owing to its competitive stand in the world. The Indian economy is growing at a fast pace and boasts of a stable annual growth rate, rising foreign exchange reserves, booming capital markets etc. The economic liberalisation of 1991 reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. In the 21st century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation. Until the liberalisation of 1991, India was largely and internationally isolated from the world markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment (FDI) was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals. Since 2000, Indian companies have expanded overseas, investing FDI and creating jobs outside India. The country has brought about a landmark agricultural revolution that has transformed the nation from chronic dependence on grain imports into a global agricultural powerhouse that is now a net exporter of food. Life expectancy has more than doubled, literacy rates have gone up, health conditions have improved. India will soon have the largest and youngest workforce the world has ever seen. India is in the midst of a massive wave of urbanization as around 10 million people move to towns and cities each year in search of jobs and opportunities. Karishma Shetty

30. Global economies are so tightly interconnected that companies, governments and industries will soon be forced to cooperate in ways we could not have imagined just a few years ago. Some of the long-term developments that are shaping our world are: Emerging markets increase their global power. Green marketing is becoming a competitive advantage. Global banking seek recovery through transformation Governments enhance ties with the private sector. Rapid technology innovation creating a smart, mobile world. Demographic shifts transform the global workforce. Karishma Shetty

31. Analysis of Business Environment Karishma Shetty

32. Business leaders can control aspects of the internal environment that can positively or negatively affect a company’s operating and financial results. For example, leaders shape their company’s culture, establish the company’s organizational structure and create policies that guide employee behaviour. However, the greatest challenges to business success may be a consequence of the external environment over which a company has little, if any, control. To address these challenges, business leaders conduct an environmental analysis and develop policies and processes that adapt company operations and products to this environment. An organization relies on strengths to capture opportunities and recognize weaknesses to avoid becoming a victim of environmental threats. A company performs an environmental analysis to gain an understanding of these strengths, weaknesses, opportunities and threats. The environmental analysis then influences corporate planning and policy decisions. Karishma Shetty

33. This environmental analysis is a three-step process in which a company first identifies environmental factors that affect its business. For example, the company might consider if a market is “difficult” because of its remote geographic location or the area’s unfavourable economic conditions. The company then gathers information about the selected set of environmental factors that are most likely to impact business operations. For example, the company might review International Trade Centre surveys that relay information about trade barriers that companies face in particular countries. This information serves as input to a forecast of the impact of each environmental factor on the business. For instance, a company might project the volume of products likely to be sold in a country in light of existing poor economic conditions and significant trade barriers. An environmental analysis reviews current environmental conditions to forecast a future business environment. The static nature of the analysis ensures that unexpected environmental changes are not considered in a company’s business projections. In addition, the environmental analysis is but one source of information that’s evaluated as a company develops a strategic plan. As a result, the analysis does not guarantee business success. The benefit of the analysis is also limited by the reliability and timeliness of data used in the analysis. Karishma Shetty

34. Need for Analysis of Business Environment: An organization performs an environmental analysis to gain an understanding of its strengths, weaknesses, opportunities and threats. The environmental analysis then influences corporate planning and policy decisions. Analysis of environment is essential because of following reasons: A tool to anticipate changes Identification of strength Identification of weakness Identification of opportunities Identification of threat Optimum use of resources Survival and growth To plan long-term business strategy Environmental scanning aids decision-making Enhances Corporate Image Employee Motivation Karishma Shetty

35. SWOT Analysis Karishma Shetty

36. For business it is important to know its surrounding environment from internal and external point of view. Therefore it is important to evaluate environment opportunities in relation to the strengths and weaknesses of the organization’s resources, and in relation to the organizational culture. SWOT analysis is one of the popular technique having applications in many areas. It is the acronym for explaining strengths, weaknesses, opportunities and threats for any specific organization. SWOT analysis was evolved by Stanford Research Institute of USA in 1960s. It is a structured planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a business venture. Some authors call SWOT as SCOT (Strength, Contains, Opportunities, and Threats) or ETOP (Environment Threat and Opportunities Profile). SWOT analysis technique involves: (1) Setting the objectives of the organization (2) Identifying its strengths, weaknesses, opportunities and threats (3) Asking the questions: (a) How do we maximize our strengths? (b) How do we minimize our weaknesses? (c) How do we capitalize on the opportunities in our external environment? (d) How do we protect ourselves from threats in our external environment? (4) Recommending strategies that will optimize the answers from the above four questions. A SWOT analysis can be carried out for a product, place, industry or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieve that objective. Karishma Shetty

37. Karishma Shetty

38. Strengths: Strength is an inherent capacity, which can be used for developing strategic advantage. It is the positive competencies of a firm as compared to its competitors in the different functional areas of production, marketing, personnel etc. Strengths can be tangible or intangible. Tangible Strengths – are visible like huge financial resources, favourable location, high client retention, a user-friendly website, low staff turnover, maximum number of ATMs, low overheads etc Intangible Strengths – are not visible but have to be interpreted like organizational learning capability, process capability, image etc. Every firm should try and consolidate its strengths. Karishma Shetty

39. Weaknesses: Weakness is an inherent constraints or limitations of the organization that prevent it in achieving its objectives. It is the negative competencies of a firm as compared to its competitors in all functional areas of the organization. The weaknesses in an organizations. SWOT analysis should list the areas where the organization is falling short of reaching its goals. Like strengths weaknesses can be tangible or intangible. Tangible Weaknesses – depreciating machinery, insufficient funds, low customer satisfaction, low staff morale etc. Intangible Weaknesses – lack of committed employees, poor top management practices etc. Every firm should make efforts to minimize its weakness. Karishma Shetty

40. Opportunities: Opportunities are favourable conditions, which enables an organization to strengthen its present position. The opportunities section in an organizations. SWOT analysis should list the areas where it has scope for growth or could take advantage of opportunities in the marketplace. Since opportunities depend on the behaviour of various factors of environment, there may be different types of opportunities like liberalization of economy provides opportunity to enter a new business sector, lower interest rates provide opportunity for raising more funds through borrowing to increase business volume etc. Every firm should attempt to grab the right opportunity at the right time. Karishma Shetty

41. Threats: Threat is an unfavourable situation which results in risk and damage to an organization. Threats emerge from various sources like economic slowdown, entry of a powerful competitor in the market, emergence of a new substitute product making the existing product obsolete etc. For example, a bank’s threats may include a declining economy, increased capital gains taxes, more competitors in the marketplace, high unemployment or an increase in insurance rates. Information about these aspects is collected, processed and analysed. Since this process generates large volume of information, it becomes quite time consuming for higher management to go through all the details of the analysis. Karishma Shetty

42. Benefits of SWOT Analysis: The main advantages of conducting a SWOT analysis is that it has little or no cost - anyone who understands the business can perform a SWOT analysis. Using a SWOT one can: address weaknesses deter threats capitalize on opportunities take advantage of strengths SWOT Analysis is: Simple to use Involves low cost Flexible and can be adapting to varying situations Develop business goals and strategies for achieving them Karishma Shetty

43. Limitations of SWOT Analysis: When an organization is conducting a SWOT analysis, it should keep in mind that it is only one stage of the business planning process. For complex issues, it will usually need to conduct more in-depth research and analysis to make decisions. A SWOT analysis only covers issues that can definitely be considered a strength, weakness, opportunity or threat. Because of this, it's difficult to address uncertain or two-sided factors, such as factors that could either be a strength or a weakness or both, with a SWOT analysis (e.g. organization might have a prominent location, but the lease may be expensive). A SWOT analysis may be limited because it: does not prioritize issues does not provide solutions or offer alternative decisions can generate too many ideas but may not actually help choose which one is best can produce a lot of information, but not all of it may be useful. Karishma Shetty

44. What is Business?

45. Business is an economic activity which is related with continuous and regular production and distribution of goods and services for satisfying human wants. All of us live in families and depending on the income, we have different standards of living. We require various types of goods and services to satisfy our needs and wants. People engage in different activities which are known as economic activities. In ancient times, people had limited wants to satisfy. In modern times however, we need a large variety of goods and services to satisfy our needs and to raise our standard of living. On the one hand the supply of goods and services has led to various activities. On the other hand, activities of different types are undertaken by people to earn sufficiently to fulfil their increasing wants. Thus we find large numbers of people engaged in business, industry, and profession. Such economic and business activities satisfy various needs and demands for goods and services. We require daily necessities like food, shelter and clothing for survival. These are provided to us by the retailers who are called as businessmen. Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit. Businesses can be privately owned, not-for-profit or state-owned.

46. HUMAN ACTIVITY AND BUSINESS: Human activity is divided into economic and non-economic activity. The work of a farmer, manufacturer, teacher, doctor, trader etc. are some examples of economic activities. Such activities are primarily concerned with the production, distribution and consumption of goods and services. Besides economic activities, people also undertake a number of activities for mental satisfaction. They engage in charitable work, practice religion, undertake recreational activities and also do many things out of love for others or out of patriotic feelings. These activities are known as non-economic activities. These activities are undertaken not for any material reward or gain but for one’s happiness, pleasure or satisfaction which cannot be measured in terms of money.

47. DEFINITIONS OF BUSINESS: Stephenson defines business as, “The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.” According to Dicksee, “Business refers to a form of activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted.” Lewis Henry defines business as, “Human activity directed towards producing or acquiring wealth through buying and selling of goods.” Thus, the term business means continuous production and distribution of goods and services with the aim of earning profits under uncertain market conditions

48. Profit is the main objective 03 Features Of Business Exchange of goods & services 01 Deals in numerous transactions 02 Business for Economic Success 04 Risks and Uncertainties 05 Buyer and Seller 06 Deals in goods and services 09 Connected with production 07 Marketing and Distribution of goods 08 To satisfy human wants 10 Social obligations 11

49. Objectives of Business Economic Social Human

50. Economic Objectives Earning Profit. Technology Improvements. Production of goods. Creating Market. Creating Employment opportunities. Welfare of employees. Improving standard of living. Satisfaction of Shareholders and Customers. Human Objectives Quality goods and services. Regular supply of goods. Cooperation with Government. Proper Financial Planning. Research and Development. Social Objectives

51. SCOPE OF BUSINESS INDUSTRY COMMERCE AIDS TO TRADE TRADE 1. Primary 2. Extractive 3. Generic 4. Manufacturing A. Basic B. Capital Goods C. Intermediate Goods D. Consumer Goods — Consumer Durables —Consumer Non-durables 5. Construction 6. Service 7. IT INTERNAL EXTERNAL 1. Retail 2. Wholesale 1. Import 2. Export 3. Entreport 1. Transport 2. Warehousing 3. Advertising & Salesmanship 4. Insurance 5. Mercantile Agents & Trader 6. Banking & Insurance

52. Types of Business Organizations Sole Proprietorship Co-operative Co- operation Partnership

53. Franchise Online Business Family Business Home Based Business Types of Business Importer Exporter Independent Contractor

54. ROLE OF BUSINESS TO SOCIETY TO BUSINESS FIRMS (1) Achievements of objectives (2) Increase knowledge & skills (3) Product Development (4) Good Relations (5) Corporate Image (6) Optimum use of resources (7) Business Expansion (1) Quality goods & services (2) Goods at reasonable prices (3) Standard of living (4) Customer Satisfaction (5) Better facilities & services (1) Economic growth (2) Regional development (3) Social welfare (4) Employment opportunities (5) Revenue to Government (6) Capital Formation (7) International Relations TO CONSUMERS

55. End of Module 1 Karishma Shetty