1. Business
Environment

2. Definition of Business
Environment
‘‘Business environment is the aggregate of all conditions, events and influences
that surround and affect it.”
Keith Davis

3. Concept of Business
Environment
The forces which constitute the business environment are its suppliers,
competitors, consumer groups, media, government, customers, economic
conditions, market conditions, investors, technologies, trends, and multiple other
institutions working externally of a business constitute its business environment.
These forces influence the business even though they are outside the business
boundaries.

4. Significance of Business
Environment
1. Enables to Identify Business Opportunities
Business environment provides many opportunities to the firms to improve their
performance. If understood and evaluated them, they can be the reason for the
success of a business.
2.Helping in the identification of threats
Business may be subject to threats from competitors and others. Environment
understanding helps an enterprise to recognize qualitative information in advance,
which can be used for facing these threats.

5. Significance of Business
Environment
3. Helps in Tapping Useful Resources
Business requires many resources like raw materials, tools, equipments, finance,
labour etc. for performing business activities. These resources are known as inputs.
Business environment provides all these inputs to the business firms for carrying
out their activities.
4. Coping with the rapid changes
The business must be aware of the ongoing changes in the business environment,
whether it be changes in customer requirements, emerging trends, new
government policies, technological changes. If the business is aware of these
regular changes then it can bring about a response to deal with those changes.

6. Significance of Business
Environment
5.Assisting in planning and policy formulation
When the Business Environment presents a problem or an opportunity, it is up to the business to
decide what plans and policies would it have to formulate in order to address the future.
6. Helps in Improving Performance
The enterprises that monitor their environment closely can adopt suitable business practices not
only to improve their performance but also to become leaders in the industry.
7.Public Image
A business firm can improve its image by showing that it is sensitive to its environment and
responsive to the aspirations of public. Leading firms have built good image by being sensitive and
responsive to environmental forces.

7. Nature of Business Environment
 Complex
Environment consists of a number of factors, events, conditions and influences arising from
different sources which impact business thus making the business complex.
 Interdependence
The environment of the business is made of social, economic, legal, cultural, technological, and
political factors. These factors of the environment are inter-dependable.
 Dynamic
The business environment is the product of various dynamic factors, I.e., economic social, political,
geographical religious and technological. All these factors are dynamic and beyond the control of a
firm; its success will depend to a very large extent on its adaptability to the environment.

8. Nature of Business Environment
 Impact
Business environment has both long term and short term impact. Environment
therefore has different effects on different firms in the same industry.
 Uncertainty
Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too frequently.
 Relativity
It is a relative concept since it differs from country to country and region to region.

9. Elements of Environment
Organizations have an external and internal environment
– Internal environment / Micro environment.
– External environment / Macro Environment.

10. Internal environment
Forces or conditions or surroundings within the boundary of the organization are the elements of
the internal environment of the organization. It is also known as controllable factors because
business can control them. It includes
1.Employees
Business hires employees. Employees differ in skill, knowledge, morality, and attitude and so on
They are the major internal factor. It can be controlled by the business.
2. Shareholders
Management deals with many shareholders. Shareholders have the right of ownership, power of
management and voting right. The actual management of organization is carried out by elected
representative of shareholders jointly known as board of directors.

11. Internal environment
3.Organisation structure
The arrangement of various facilities, pattern of relationships among the various
department, responsibility, authority and communication is the organization
structure. It also included specialization and span of control.
4.Organization culture
The sets of values that help the members to understand what organization stand
for how it does work, what it considers, cultural values of business forces of
business and so on. It helps in direction of activities.

12. External Environment
An external environment is composed of all the outside factors or influences that
impact the operation of business. The business must act or react to keep up its
flow of operations.
The external environment can be broken down into two types: the micro
environment and the macro environment.

13. Micro Environment
The micro environment consists of the factors that directly impact the operation of a
company. It includes
1.Suppliers
Suppliers are those who supply the inputs like raw materials and components to the
company. The company necessarily should go for searching for potential suppliers,
identifying and analyzing the suppliers and thereafter choose those suppliers who offer
best mix of quality, delivery reliability, credit, warranties and low cost.
2.Customers
The customers are the central part of any business as they tend to attract and retain
most of the customers to generate revenue. Therefore, organizations must adopt a
strategy that attracts the potential customers and retains the existing customers.

14. 3.Competitors
An organization must understand, what value added services their competitor is providing or the
unique selling point of their competitors. The organization should develop such effective strategies
that can influentially position its products in the competing market.
4. Marketing Intermediaries
The organizations that assist in promoting, selling & distribution of products to final customers of
specific organization are called marketing intermediaries. They could be your distributors,
wholesalers and other related people.

15. 5.Financiers
The finance is provided with the help of financial intermediaries like banks etc, which insure the
risks of the organization.
6.Public
Public include a group of individuals that can influence the ability of the organization to accomplish
it objectives. So the organization should develop an effective plan for the public.

16. Changing dimensions of
Business Environment
Macro Environment consists of general factors that a business typically has no control
over. The success of the company depends on its ability to adapt. It includes
1. Economic environment
It indicates the condition of economy in which business organization operates. It has
continuous and great impact on business. It includes national income, production,
inflation, savings, investment, price, government activities
2.Political or legal environment
It is defined as rules and regulations determined by the government. There should be
non violation of rules and regulation of government. Business should avoid unfair trade
and should provide essential information to the government.

17. 3.Social environment
Customs, mores, values and demographic characteristics of the society in which
the organization operates are what made up the socio-cultural factors of the
general environment. Socio-cultural forces include culture, lifestyle changes, social
mobility, attitudes towards technology, and people’s values, opinion, beliefs, etc.
4.Technological environment
Technological changes substantially affect a firm’s operations in many ways.
Technological factors include information technology, the Internet, biotechnology,
global transfer of technology and so forth.

18. Meaning of Environmental
Scanning
Environmental scanning meaning is the gathering of information from an
organizations internal and external environments, and careful monitoring of these
environments to identify future threats and opportunities. It is the analyses of all
factors that may affect the future of the organization.
Information is collected by monitoring and forecasting any changes that occur to
the variables of the environment that have been identified earlier.

19. Environmental
Scanning
&Monitoring
Techniques
SWOT
QUEST
Competitor
Analysis
Industry
Analysis
PEST

20. SWOT Analysis
A study of the internal and the external environment is a critical component of the
strategic planning process.
The firm’s internal environmental factors can be classified as strengths (S) or
weaknesses (W), and those factors which act as external agents to the firm can be
classified as opportunities (O) or threats (T). This is called SWOT analysis.
This analysis gives information that is useful in matching the organization’s
resources and abilities to the environment in which it operates.

21. QUEST Analysis
QUEST is an environmental scanning technique that is designed to assist with
organizational strategies by keeping adheres to change and its implications.
– The process of environmental scanning starts with the observation of the
organization’s events and trends by strategists.
– After observation, important issues that may impact the organization are
considered using environment appraisal.
– A report is created by making a summary of these issues and their impact.
– In the final step, planners who are responsible for deciding the feasibility of the
proposed strategy, review reports.

22. Competitor Analysis
– Organizations must operate within a competitive industry environment.
Analyzing organization’s competitors helps an organization to discover its
weaknesses, to identify opportunities for and threats to the organization from
the industrial environment.
– Competitor analysis is a driver of an organization’s strategy and effects on how
firms act or react in their sectors. The organization does a competitor analysis
to measure its standing amongst the competitors.

23. Industry Analysis
Industry analysis is a market assessment tool used by businesses and analysts to
understand the competitive dynamics of an industry.
It helps them get a sense of what is happening in an industry, i.e., demand-supply
statistics, degree of competition within the industry, state of competition of the
industry with other emerging industries, future prospects of the industry taking
into account technological changes, credit system within the industry, and the
influence of external factors on the industry.

24. PEST Analysis
PEST technique for a firm’s environmental scanning includes analysis of political,
economic, social, and technical factors of the environment.
Political factors
Political factors that impact an industry include specific policies and regulations related
to things like taxes, environmental regulation, tariffs, trade policies, labor laws, ease of
doing business, and the overall political stability.
Economic factors
Different economical Factors like the unemployment rate, inflation, cost of labor,
economic trends, disposable income of consumers, monetary policies, etc. play an
important role in environmental scanning.

25. PEST Analysis
Social factors
The social impact on an industry refers to trends among people and includes things
such as population growth, demographics (age, gender, etc), and trends in
behavior such as health, fashion, and social movements.
Technological Factors
To maximize profits, production should be handled most cost-effectively and this,
technology has an important contribution. This analysis incorporates factors such
as advancements and developments that change the way a business operates and
the ways in which people live their lives

26. Economic Environment of
business
An economic environment is a set of all economic conditions that influence a business. These vary
by region, country and industry over time. The elements of economic environment include:
– Demand and Supply
There are two great economic factors affecting business models work – demand and supply.
Demand is how willing and able a consumer is to purchasing what a business offers and supply is
how able the business is to make available what the consumer needs.
– Interest rates
Interest rates greatly influence the cost of capital of all businesses. This influences the capital
spending and competition. When interest rates go down, business may expand. When they go up,
business may contract or fail at higher rates.

27. – Inflation
Inflation usually occurs when the supply of money is too much in the economic environment market
while not equally supported by a similar availably of goods and services. The prices of goods have to
increase in order to sustain the businesses. So there is an increase in the cost of raw materials
needed for production. The buying power of consumers decreases, their incomes remain constant,
but the prices of products and services shoots up. This will definitely affect the businesses
– Recession
Companies usually make great losses and face dips in sales and profits during recession. And in
order to reduce their costs most of them usually resort to staff cuts, retrenchment and firing,
reducing capital expenditure, advertising budgets, research and development activities, and so on.
Of course this affects companies

28. – Income and Employment
The rate of income and employment rate in a particular country. The density of employment
determines the rate of demand in a company and even the country including the purchasing power
of individuals.
– Taxes
Business taxes in a particular country. A high tax rate will discourage entrepreneurship and business
investments.
– Consumer confidence level
consumers feel about their economic future also affects the business. Confident consumers spend
more, save less and take out more debt. Pessimistic consumers save, pay off debts and spend less

29. Economic Planning in India
– At the time of independence, the Indian economy was basically agrarian with a weak industrial
base.
– To speed up the industrial growth the government took several steps like state ownership on
certain categories of industries, economic planning, reduced role of private sector, etc.
– The Government adopted several control measures on the functioning of private sector
enterprises. There was growth in net national product, per capita income and development of
capital goods sector and infrastructure. But rate of industrial growth was slow, inflation
increased and government faced a serious foreign exchange crisis during eighties.
– As a result, the government of India introduced a radical change in economic policies in 1991
which abolished industrial licensing in most of the cases, allowed private participation in most
industries, disinvestment was carried out in many public sector industrial enterprises.
– Foreign Investment Promotion Board was set up to channelise foreign capital investment in
India. The developments mentioned under three heads,(a) Liberalisation, (b) Privatisation, and
(c) Globalisation

30. Economic Reforms
– (a)Liberalisation: Liberalisation refers to the process of eliminating unnecessary controls and
restrictions on the smooth functioning of business enterprises. The basic aim of liberalization is
to allow private players to expand for the growth of the country.
– (b) Privatisation: It is the increment of the dominating role of private sector companies and the
reduced role of public sector companies. In other words, it is the reduction of ownership of the
management of a government-owned enterprise.
– (c) Globalisation: Globalisation means integrating the economy of a country with the world
economy. This implies free flow of goods and services, capital, technology and labour across
national boundaries. Globalization is attempting to create a borderless world, wherein the need
of one country can be driven from across the globe.

31. Economic Policies
All business activities and operations are directly influenced by the economic policies
framed by the government from time to time. Some of the important economic policies
are
– Industrial policy
The Industrial policy of the government covers all those principles, policies, rules,
regulations and procedures, which direct and control the industrial enterprises of the
country and shape the pattern of industrial development.
– Fiscal policy
It includes government policy in respect of public expenditure, taxation and public
debt. The new fiscal policy aims at improving allocation of resources in terms of market
principles

32. – Monetary policy
It includes all those activities and interventions that aim at smooth supply of credit to the business
and a boost to trade and industry.
– Export and import Policy
It aims at increasing exports and bridge the gap between expert and import. Through this policy,
the government announces various duties/levies. The focus now-a-days lies on removing barriers
and controls and lowering the custom duties.
– Foreign investment policy
This policy aims at regulating the inflow of foreign investment in various sectors for speeding up
industrial development and take advantage of the modern technology.

33. Public Sector and Economic
Development
– Contribution to Capital Formation
Capital Formation means increasing the stock of real capital in a country. The share of
public sector in gross domestic capital formation has increased from 3.5 per cent during
the First Plan to 9.2 per cent during the Eighth Plan.
– Development of infrastructure
Without the development of infrastructural facilities, economic development is
impossible. Public sector investment on infrastructure sector like power, transportation,
communication, basic and heavy industries, irrigation, education and technical training
etc. has paved the way for agricultural and industrial development of the country
leading to the overall development of the economy as a whole.

34. – Export Promotion and Import Substitution
Public sector enterprises have been contributing a lot for the promotion of India’s exports. The
foreign exchange earning of the public enterprises rose from Rs. 35 crore in 1960s to Rs. 5,831 crore
in 1980s and then to Rs. 34,893 crore in 2000. The public sector made an immense contribution to
the process of substitution of indigenously produced goods. Today many commodities including
basic drugs to highly advanced equipments are manufactured in the public sector.
– Generation of National Income
Public sector in India has been playing a definite positive role in generating income in the economy.
Public sector adds huge revenue through Excise Duty, Customs Duty, Dividend, Profit and other
direct taxes. The share of public sector in net domestic product (NDP) at current prices has
increased from 7.5 per cent in 1950s to 21.7 per cent in 2000.

35. – Employment Generation
Public sector is playing an important role in generating employment in the country. Indirect
employment generation is through public investment in Anti-unemployment programme.Direct
employment generation is through expansion of its administration department and economic
enterprises.
– Balanced regional development
The public sector has an important role to set up industries in the economically backward regions of
the country which in spite of having natural resources have remained poor. This would help in
ensuring balanced regional development and generate income and employment opportunities for
poor people all over the country.

36. Structural Adjustment Programs
A structural adjustment is set of economic reforms that a country must adhere to in order to secure
a loan from the International Monetary Fund and the World Bank. Structural adjustments are often
a set of economic policies, including reducing government spending, opening to free trade and so
on.
Countries have been required to perform some combination of the following:
– Devaluing their currencies to reduce balance of payments deficits.
– Cutting public sector employment, subsidies, and other spending to reduce budget deficits.
– Privatizing state-owned enterprises and deregulating state-controlled industries.
– Easing regulations in order to attract investment by foreign businesses.
– Closing tax loopholes and improving tax collection domestically.

37. Thank You