1. Economic Environment of Business
BBA II
Sharda University
Prepared by : Neeraj Bhandari

2. Unit 1 : Introduction to Business Environment
The concept of Business Environment
Significance of Business Environment
Impact of Environment on Business and
Strategic Decisions.

3. Business : Meaning, Characteristics & objectives
• Business refers to the buying or selling of goods or services or the activity
of making money by producing and selling goods, or providing services.
• Modern business ,spans a vast and complex field of activity involving
industry, trade and commerce as they relate to production, distribution and
exchange of goods and services.
• According to F.C Hooper “ Business means the whole complex field of
commerce and industry, the basic industries, processing and manufacturing
industries and the network of services which service and inter – penetrate
the world of business as a whole”.

4.  Business has certain characteristic :
1. Elements of Enterprise
2. Dealing in exchange of Goods and services
3. Profit Motive
4. Element of risk and Uncertainty
5. Economic Activities related to production and Distribution
6. Element of creation of utilities
7. Element of continuity of Transaction

5. Characteristics of Modern Business
Modern
Business
Large
Size
Global
Reach
Oligopolistic
structure
Technology
Based
Diversification
Government
Control
Emerging
Ethical
Consciousness

6. Environment
• Environment refers to all external forces which have a bearing on the
functioning of business. ”Environment are largely if not totally external, and
beyond the control of individual industrial enterprises and their management.
These are essentially the givers within which firms and their managements
must operate in a specific country and they vary, from country to country”.
• However, the term business environment refers to the External Factors.
The external environment has two components ie business opportunities and
threats to business.
• Simmilarly, the organisational environment has two components ie. strengths
and weaknesses of the organisation. A SWOT analysis is thus the first step in
strategy formulation
Business DecisionInternal Environment External Environment
Factors influencing Business Decision

7. Business
Decision
Internal Environment
Mission / Objectives
Management Structure
Internal Power Relationship
Physical Assets & facilities
Company image
Human resources
Financial Capabilities
Technological Capabilities
Marketing Capabilities
Financiers
Suppliers
Customers
Competitors
Public
Mktg Intermediaries
Micro Environment
Economic
Technological
Global
Demographic
Socio-Cultural
Political
Macro Environment
BUSINESS ENVIRONMENT

8. • Internal Environment: Any business has certain vision, mission and
objectives and a strategy to achieve them. Formulation of strategy is
defined as establishing a proper firm-environment fit. Indeed the objectives
should be based on an assessment of the external environment and the
organizational factors (internal environment).
• The Micro environment consists of different types of stakeholders -
customers, employees, suppliers, marketing intermediaries, competitors. It
is also known as the Task Environment and Operating Environment and has
a direct bearing on the operations of the firm. Changes in the micro
environment will directly affect and impinge on the firm's activities.
• The Macro Economics : it consist of the factors which are beyond the
control of the business.

9. Process of Environmental Analysis
The analysis consists of four steps:
 Scanning : Detect early signals of possible environmental change and
detect environmental change already underway.
 Monitoring : Purpose of monitoring is to assemble sufficient data to discern
whether certain trends are emerging, identification of the trends and
identification of areas for further scanning.
 Forecasting : It is concerned with developing projections of the direction,
scope and intensity of environmental change.
 Assessment : To determine implications for the organization's current and
potential strategy.
Scanning Monitoring Forecasting Assessment

10. Environmental Analysis and Strategic Management
Defining Business Mission and Objectives
SWOT Analysis
Environmental Analysis + Self Appraisal
Strategic Alternatives and Choice of Strategy
Implementation of Strategy
Evaluation and Control of Strategy

11. POSITIVE/
HELPFUL
to achieving the
goal
NEGATIVE/
HARMFUL
to achieving the
goal
INTERNAL Origin
facts/ factors of the
organization
Strengths
Things that are
good now,
maintain them,
build on them
and use as
leverage
Weaknesses
Things that are bad
now, remedy,
change or stop
them.
EXTERNAL Origin
facts/ factors of the
environment in
which the
organization
operates
Opportunities
Things that are
good for the
future, prioritize
them, capture
them, build on
them and
optimize
Threats
Things that are bad
for the future,
put in plans to
manage them or
counter them

12. SWOT Analysis of Indian Economy
Strengths
• Huge pool of labor force
• High percentage of cultivable land
• Diversified nature of the economy
• Availability of skilled manpower
• Extensive higher education system
• High growth rate of economy
• Rapid growth of IT / ITes Sector
• Abundance of natural resources
Weaknesses
• High percentage of workforce involved
in agriculture
• Approx a quarter of population below
the poverty line
• High unemployment rate
• Inequality in prevailing socio economic
conditions, rural – urban divide
• Low productivity
• Huge population leading to scarcity of
resources
• Low level of mechanization
• Red tapism, Bureaucracy
• Low literacy rates
Opportunities
• Scope for entry of private firms in various
sectors of business
• Inflow of FDI
• Huge foreign exchange prospects in IT / ITeS
• Investment in R & D
• Area of infrastructure
• Huge domestic market : Opportunity for MNCs
• Huge agricultural resources
Threats
• High fiscal deficit
• Threat of government intervention in
some states
• Growing import bill
• Population explosion, rate of growth of
population
• Agriculture excessively dependent on
monsoon

13. Significance and Importance of Business Environment
• Firm to Identify Opportunities and Getting The First Mover
Advantage: Early identification of opportunities helps an enterprise to be
the first to exploit them instead of losing them to competitors. For example,
Maruti Udyog became the leader in the small car market because it was the
first to recognize the need for small cars in India .
• Firm to Identify Threats and Early Warning Signals: If an Indian firm
finds that a foreign multinational is entering the Indian market it should
gives a warning signal and Indian firms can meet the threat by adopting by
improving the quality of the product, reducing cost of the production,
engaging in aggressive advertising, and so on.
• Coping With Rapid Changes: All sizes and all types of enterprises are
facing increasingly dynamic environment. In order to effectively cope with
these significant changes, managers must understand and examine the
environment and develop suitable courses of action.

14. • Improving Performance: The enterprises that continuously monitor their
environment and adopt suitable business practices are the ones which not
only improve their present performance but also continue to succeed in the
market for a longer period.
• Basis of strategy: Strategists can gather qualitative information regarding
business environment and utilizing them in formulating effective plants.
• Intellectual stimulation: Knowledge of environment changes provides
intellectual stimulation to planners and decision-making authorities.
• Image building: Environmental understanding by the management builds
image of the company in the minds of the people. They feel that the
company is sensitive and responsive to their needs and problems.
• Activating management to changing needs: The knowledge of
environmental changes sensitizes the management to make strategy to cope
with the emerging problems.