MBS 2nd semester Tribhubhan University Unit 1.pptx

This is a slide on the second Unit of Business Environment of MBS 2nd Semester.

1. Business Environment in Nepal

2. Business and its environment Business: any activities related to trade and commerce, profession and occupation in order to make profit Business simply means getting BUSY in production and marketing of goods and services for the purpose of making PROFIT through CUSTOMER SATISFACTION. In todays complex business environment product refers to anything that satisfies customers need such as: services, ideas, events, information, properties, places , and person. Features of business: BUSINESS ACTIVITIES CHANGE PROFIT COMPETITION CUSTOMERS DIVERSIFICATION

3. Meaning of business environment Inputs: Capital Raw materials Technology Labor Land etc. Conversion : Business firms Output: Goods Services Profit Employment Tax revenues “Business Environment is the aggregate of all conditions, events, and influences that surround and affect a business.” Keith Davis(1989) Business firm is a dynamic entity and operated in changing environment. Business system is involved in import-conversion- export process. Political/ legal Technologica l Economic Socio- Cultural

4. Characteristics of business environment i . Complexity - as various factors interact in multifaceted ways. ii. Dynamism - reflecting continuous changes in technology and market trends. iii. Far-reaching impacts - showing that local changes can have global repercussions . iv. Aggregate nature - emphasizing the combination of diverse elements influencing business outcomes.

5. Importance of business environment Comprehensive Strategy Formulation – Helps businesses create effective long-term and short-term strategies by understanding internal and external factors . Competitive Analysis – Enables companies to analyze competitors’ strengths and weaknesses to gain an edge . Adaptability – Businesses can adjust quickly to changing market conditions and trends . Stability – Awareness of the environment provides resilience against risks and uncertainties . Dynamism – Recognizes that the environment is constantly changing, requiring continuous monitoring . Lobbying – Helps businesses influence government policies and regulations in their favor.

6. Types of business environment i) Internal Environment (employees, structure, corporate culture, shareholders, unions) External Environment (micro: stakeholders, macro: PEST) i) Operating Environment (the industry within which it operated and includes factors such as labor market, customer, creditor, competitors) Remote Environment (PEST) i) Domestic Environment (consists of those uncontrollable forces that affect the firms in its home market) International Environment (conceptualized as the interaction between domestic and foreign factors; International bodies such as UN, SAARC…) i) The General Environment (PEST) The Task Environment (stakeholders)

7. Components of business environment The Organization Suppliers Distributors Customers Technological forces Competitors Global forces Demographic forces Political & Legal forces Economic forces Socio- cultural forces TASK ENVIRONMENT GENERAL ENVIRONMENT

8. Internal environment An organization’s internal environment consists of following components: Employees Insider but a good source of external environment Might create problem by resisting change. Good relation results in higher productivity and work environment. Organization structure Overall framework of organization roles, rules, hierarchy, relations and authority. Corporate culture Assumption that member of an organization share in common(values and belief) Differs from organization to organization Has powerful influence Shareholders Holds high interest on organization’s performance May raise questions Represented by elected directors Unions Represent employees and labors Power of bargaining Raise voice for the interest of employees Management of an organization has some control over these internal forces

9. External environment Complex and dynamic Constantly changing Creates uncertainty Management has no direct control over these forces(macro) Can further be classified into: Task environment (Micro) General environment (Macro)

10. 1. Task(micro) Environment Involves factors in immediate competitive situation Forces in this environment pressurize and influence manager in daily basis It is also called competitive or operating environment It can be influences and controlled to some extend. Forces are: Customers Suppliers Distributors Government Special interest groups Financial institutions Media Competitors

11. 2. General (macro) environment Affects organization and its task environment Also called remote environment Composed of uncontrollable forces such as: Economic environment - Annual Government Budget - Monetary Policy - Industrial Policy - Market System - Per Capita Income Socio- cultural environment - Demography - Fashion - Family Structure - Language - Tradition / Religion

12. 2. General (macro) environment Political Environment - Government System - Political Parties - Legislature Policy - Political Philosophy - Business Law Technological Environment - Technological Development - Technological Trade - Globalization - Informational Technology - Governmental Research and Development

13. Environmental analysis Philip Kotler defines environmental analysis as: “ the process of assessing the emerging trends. ” Environmental analysis is the study of the organizational environment to pinpoint environmental factors that can significantly influence organizational operations. It helps the managers to understand what is happening both inside and outside the organization It helps to develop appropriate strategies Technological revolution in IT, acceleration in market, product diversity, globalization, changing social value, changing life style, ecology, environment, health care concern, networking, alliances, multilateral and regional integration are some of the business realities. In this dynamic situation, environmental analysis helps to identify strength and weakness (internal analysis) and opportunities and threats (external analysis) that can affect the organization’s performance. In todays world, it is a bigger challenge for manager to anticipate, understand and deal with various forces and their impact on business and then turning them into organization’s advantage.

14. Process of environmental analysis 1. SCANNING 3. FORECASTING 2. MONITORING 4. ASSESSMENT

15. 1. Scanning It is the method of acquiring information and analyzing the trends emerging in the environment that have potential impact on the business of an organization. It is the pre- requisite to the formulation and implementation of a firm’s business strategy. Scanning involve: Identify early signs of environmental changes. They can be: Fads(craze, temporary phenomenon, unpredictable, short- lived) Trends (sequence of events with durability and is predictable) Megatrends (sequence of events with longer duration. It forms slowly but once in place, last for longer time) Identify changes already happened New tax laws, tariff limits, import- export laws, consumer trends, emerging tech, competition, substitutes…

16. 2. Monitoring It involves tracking down or auditing the gathered information in scanning process. The likely effect of environmental influences on business are identified. Monitoring involve: Specific description of trends and events Identify trends and events for further monitoring Identification of areas for forecasting.

17. 3. Forecasting This step involves forecasting on what is likely to occur. It projects the future alternative paths available. Delphi technique, scenario building, extrapolation can be some of the techniques of forecasting. Extrapolation: require information form the past to explore the future. Delphi technique: expert opinion Scenario building: firm develop various scenarios(best case, worst case, middle ground alternatives). These predictions help managers to anticipate potential changes in the environment. It help manager to develop contingency plan for what they might do in the given situation.

18. 4. Assessment In this step the competitive position of the business is analyzed. This step identifies key opportunities and threats, the position of the organization and the place that it holds in the market. This step is equally important in interpreting the data and information to determine the trend as opportunity or threat for the organization. It connects the data with the competitive relevance of the organization.

19. Environmental analysis techniques Scanning methods: Extrapolation Trend analysis, time series, regression analysis Historical analogy The environmental trends are analyzed with the help of other trends which are parallel to historical trend Intuitive reasoning Rational and unbiased intuition is used for scanning. Based on guessed individual judgement. Reliability of the method is questionable. Scenario building Scenarios are built to address future contingencies Preparing for future, not predicting the future.

20. 5. Cross- impact matrix Environmental forecasts through various methods are combined to form an integrated and consistent description of future Network method Contingency tree: graphical display of logical relationship among environmental trends that focuses on several alternative outcomes Relevance tree: logical network assigning degrees of importance to various environmental trends with reference to an outcomes Model building Mathematical representation of environmental phenomenon is used, example: simulation. Cause are specified in equation form Delphi technique Group of expert panel is formed and questioned each one about the future environmental trend. Later the responses are summarized and returned to the members for assessment. Process continues till the acceptable consensus is reached.

21. SWOT analysis

22. PESTLEG Analysis P olitical Environment Political structure Government stability Taxation policy Foreign trade policy Social welfare policy Assumptions and system of governance Public opinion Business- government relations Government and its branches E conomic Environment Economic system Monetary policy Fiscal policy Industrial and trade policy Current status of agriculture, Industry and trade Business cycles GDP, GNP trend Interest rates Money supply Inflation unemployment

23. S ocio- cultural Environment Social intuitions Social class Social values Demographics Income distribution Social mobility Life style Attitude towards work Consumerism Level of education T echnological Environment Government investment in research Government and industry focused technology New discoveries and development Pace of technology Rate of obsolescence

24. L egal Environment Current legal status Process of law formation and implementation Institutions involved Court of law Business law Constitution G lobal Environment Global market International political events Degree of regional and global integration E nvironmental Components Environment protection law Wastage disposal Energy consumption Environment awareness Environment protection groups

25. Environmental analysis for strategic management Today’s business realities: Changing demographics Geographically dispersed workforce Practice of corporate governance Increasing sense of ethics and CSR Changing attitudes towards lifestyle, health, wealth, gender, work, leisure… Growing concern for environment Business alliances Fastest growing IT Integration of world economy in multilateral framework of WTO and in regional agreements like SAARC, ASEAN, BIMSTEC etc. liberalization of economies of many third world nations . In Nepal, similar patterns of changes are seen. So it is more important for Nepalese business firms to develop appropriate corporate strategies for survival.

26. Strategic management: concept W.F. Glueck(1980) defines SM as: “that set of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives.” Traditional management only emphasized only on internal affairs of business while contemporary management extends its approach to take into consideration external changes too. Strategic management, thus , focuses on the extension of the planning function to more analytical and complex organization- environment interaction. Strategic management process involves: Goal formulation SWOT analysis Identification of strategic alternatives Strategy formulation Strategy implementation Measurement and evaluation Reformulation of strategy

27. Use of environmental analysis in strategic managements A firm’s strategy is the optimal match between environmental opportunities and threats and the organizational strength and weaknesses. This matching helps the organization to set the plans in order to achieve organizational objectives.

28. Relationship between the organization, environment and Strategic management Environmental analysis helps the managers to find out answers to following questions: Where are we now? Where will we head if we maintain the same course? What are our strength and weaknesses? What are our resources? Where are we with respect to our objective? What are our market opportunities and potential threats? How effective are our present strategies? Is modification in goal required?

29. Recent Trends and Emerging Business Environment in Nepal Increased Private Investment – Boosts business opportunities and economic growth . Growing Urban Population – Expands consumer markets and demand for goods/services . Educated Customers – Customers are more aware, demanding higher quality and transparency . Changing Government Role – From regulator to facilitator, encouraging business growth . Rising Economic Agendas – Focus on GDP growth, sustainability, and inclusive development. Modern Technologies – Automation, AI, and digital tools reshape industries. Global Integration – Businesses compete and collaborate internationally .

30. Shift to Service Industry – Service sector (IT, finance, healthcare, etc.) is growing faster than manufacturing. Workforce Diversity – Varied backgrounds, skills, and cultures enhance creativity and innovation Changing Socio-Cultural Values – Shifts in lifestyle, attitudes, and consumption patterns affect demand.