This presentation explains the basics of business environment. It contains definition, types, characteristics and importance of business environment.

1. Manoj Xavier
Research Scholar
M.G. University

2. A business is a open system. It gets its resources from the
environment & supplies its goods and services to the
environment . There are different levels of environment
forces . Some are close and internal forces and some are
external forces.
All business organization have to maintain close
contact with the environment . The interaction and
transaction with the environment is essential for the
existence of a business . It is, therefore , a vital role of
managers to analyze business environment so that they
could pursue effective business strategy.

3. According to Bayard O Wheeler , business
environment as “The total of all things
external to firms and industries, which
affect their organization and operation.”

4. TYPES (COMPONENTS) OF BUSINESS ENVIRONMENT

5. On basis of the extent of intimacy with the organization,
the environment may be categorized into two types;
(A) INTERNAL ENVIRONMENT
(B) EXTERNAL ENVIRONMENT
(A)INTERNAL ENVIROMENT
The internal environment is the environment that has a direct
impact on the business . It is composed of the elements within the
organization , including current employees , management , and especially
corporate culture , which defines employee behavior. Most of them are
controllable and the organization can manage them.
An outline of important internal factors are given below;

6. The value system of an organization means the ethical beliefs that guide the
organization in achieving the mission & objectives. It has an important bearing to the
choice of business ,the mission and objectives of the organization , business policies and
practices.
2.VISION,MISSION & OBJECTIVES
The business domain of the company direction of development , business
philosophy , business policy etc are guided by the vision , mission and objectives of the
company . They have a critical role in designing the internal environment of an
organization.
3.ORGANISATIONAL STRUCTURE
Organizational structure includes composition of board directors , policies ,
procedures and rules ,communication flow and ability of the management team. It gives a
clear picture of the allocation of responsibility and functions of different departments of the
organization.

7. The success and survival of the firm largely depends on the quality of
human resources . An analysis of internal environment in respect of human resources would
reveal the short comings of human resources and as such measures can be taken to correct
such weakness.
5.FINANCIAL FACTORS
The financial resources of the company , financial policies , allocation and
utilization of financial resources are the decisive force of the internal environment of an
organization.
(B)EXTERNAL ENVIRONMENT
External factors consist of those factors which affect the business enterprise from
outside .Companies operate in the external environment and these forces will shape
opportunities as well as threats . These forces represent uncontrollable ,which the company
must monitor and respond to. The external environment consist of two types , viz ;

8. Micro environment includes those players whose decisions and actions have a
direct impact on the company. The micro environment is also known as the ‘Task environment or
Operating environment’ . It consist of factors that the firm regularly deals with . A firm has no
absolute control over micro environment but it can exercise some influences over micro
environment factors.
DEFINITION
According to Hill and Jones , “the micro environment of a company consists of
elements that directly affect the company such as competitors , customer and
suppliers “.
COMPONENTS OF MICRO ENVIRONMENT
A.SUPPLIERS
Suppliers are those who supply inputs such as raw materials and components to the company.
Normally most firms in order to reduce risk and uncertainty firms may prefer to keep multiple suppliers
. Any sudden changes in the ‘suppliers’ environment will have a substantial impact on the companies
marketing operations.

9. Creditors includes banks and financial institutions which provide funds to the
business as loans . The productions and distribution of the products and services may be
delayed or stopped due to adequate financial support from creditors.
C.COMPETITORS
Different firms in industry may compete with each other for sale of their products. By
analyzing the competitors , the company can evaluate its threats and opportunities , strength
and weakness . This help the company to come up with a better product and services.
D. CUSTOMERS
a customer is a buyer , purchaser or user of the product and services of the business.
And therefore customer satisfaction determines the survival of a company and its products.

10. The public expects many benefits from the business such as employment,
environment friendly operations , shares etc. A better corporate image is possible only if
the company meets the expectations of public. Better corporate image helps company to
grow , sustain its profits and excellence.
F.MARKETING INTERMEDIARIES
In the firms external micro environment , marketing intermediaries play an
essential role of selling and distributing its products to the final customers . Marketing
provides an important link between a business firm and its ultimate customers .
2.MACRO ENVIRONMENT
Macro environment refers to uncontrollable external factors that indirectly affects
the operations of an organization . So these components do not need immediate attention
of the strategic managers . Changes occurring in macro environment affects all organizations ,
especially on a long term basis.

11. Jones and George defines macro environment as “the wide ranging global ,
economic , technological , socio culture , demographic , political and legal forces that
affects the micro environment “.
COMPONENTS OF MACRO ENVIRONMENT
A.SOCIAL-CULTURE ENVIRONMENT
Socio-culture environment is an important factor that should analyzed while formulating
company strategy. The buying and the consumption habits of people , their language ,beliefs and
values , customs and traditions , taste and preference , education are all factors that affect the
business .
B.LEGAL ENVIRONMENT
Organizations must operate within a framework of governmental regulations and legislation
. Business firm must have to up to date and complete knowledge of the laws governing production
and distribution of good and services.

12. Business and economic is closely related . Economic factors usually includes interest rates ,
exchange rates and inflation rate . These factors influence business decisions .

13. The political environment consist of factors related to management of public affairs and their
impact on the business of an organization. Some of the important factors are political structure ,
political philosophy ,government ‘s role in business in business , its policies and interventions
in economic and business development.
5. TECHNOLOGICAL ENVIRONMENT
Technology implies systematic application of scientific or other organized knowledge to
practical task or activities . Sophisticated technology and automation reduces the cost of
production and operations of business.

14. The natural environment is the ultimate source of many inputs such as raw
materials and energy, which use in their productive activity . In fact the availability
of natural resources in the region or country is the basic factor determining
business activity in it .

16. Business environment is the sum totals of all those factors / forces which are available
outside the business and over which the business ha no control . It is the group of many such
forces that’s why , its nature is of totality .

17. (A). SPECIFIC FORCES :These forces affect the firm of an industry separately ,
e g , customers , suppliers , investors etc .
(B) . GENERAL FORCES :These forces affect all the industry equally
e. g ,social , political ,legal and technical situations .
3. INTER-RELATED
The different factors of business are correlated . For example , suppose there is a change
in the import-export policy with the coming of a new government .
In this case , the coming of a new government to power and change in the import-export
policy are political and economic changes respectively . Thus change in factor may affects the
other .
4.DYNAMIC
As it is clear that environment is a mixture of many factors and changes in some or the
other factors continue to takes place . Therefore , it is said that business environment is dynamic.

18. Nothing can be said with any certainty about the factors of the business environment
because they continue to change quickly . The professional people who determine the
business strategy take into consideration the likely changes beforehand . But this is a risky
job .
For example , technical changes are very rapid . Nobody can easily predict the shifts in
technology .
6.COMPLEXITY
Environment comprises of many factors . All these factors are related to each
other .Therefore , their individual effect on the business cannot be recognized . This is
perhaps the reason which makes it difficult for the business to face them .

19. Business environment is related to the local conditions and
this is the reason as to why the business environment
happens to be different in different countries and different event
in the same country at different places .

20. The importance of environment in business can be well understood by studying three aspects of
relationship between business and its environment. These relationships are described as below;
1. Exchange of Information
2. Exchange of Resources
3. Exchange of Influence and Power
1.EXCHANGE OF INFORMATION
• Organization scan environmental information and use it for planning, decision making , and
control .
• Organizations transmit information to several external agencies like government, investors,
trade unions and professional bodies.

21. • Resources to a business like materials , men , money , and machine are taken from the
environment .
• Output in the form of goods and services are supplied by the business to the environment .
3.EXCHANGE OF INFLUENCE AND POWER
• Environment has a considerable stronghold over a business by virtue of its commands over
inputs . Government controls the business through legitimate power .
• A business also influences the environment through its command over internal resources and
capacity to provide output .

22. In strategic management ,environment analysis or environmental
scanning plays a crucial role in business by pinpointing current and potential
opportunities or threats in the environment . An environmental analysis is
generally conducted as a part of an analysis of strengths , weaknesses
,opportunities , and threats (SWOT) when a strategic plan is being developed
.
Managers pursuing strategic management must conduct
environment analysis quarterly , semi-annually , depending on the nature of
the business . Understanding events or conditions in the environment helps
the company to achieve competitive advantage and increase its risk coping
ability when faced with threats . Strategic managers view environmental
scanning as a prerequisite for formulating effective business strategies .

23. THANK YOU