INDIAN BUSINESS ENVIRONMENT
Business Environment: Business is an activity that involves many activities like
Business Meaning:
All creative human activities relating to the production
of goods or services for satisfying wants are known as
Business.
According to Peterson and Plowman:
“Business may be defined as an activity in which
different persons exchange something of value, whether goods
or services for mutual gain or profit”
According to W.R. Spiegel:
“All the activities included in the production and sale of
goods or services may be classified as business activities”
According to F.C Hooper:
“Whole complex field of commerce and industry, the
basic industries, process and manufacturing and the network of
ancillary services, distribution, banking, insurance, transport,
and so on which serve and interpenetrate the world of business
as whole.
Thus, business may be understood as the “Organized
efforts of enterprise supply consumers with goods and services
for a profit”
“Business is an activity that carried out for the purpose
of supplying goods and services to consumers to satisfy their
felt needs”.
production finance marketing trade insurance agency
packaging etc. all business carried out to earn a profit by
fulfilling the needs of consumers. In other words business
involves people they occupy central place around whom by
whom and for whom a business is run. BUSINESS IS
PEOPLE.
Nature of Business:
1. Vary in size
2. To earn a profit
3. Supplying of goods and services
4. Creation of job opportunities
5. Offer to better quality of life
6. Contributing economic growth of country.
7. Society can not do without business
Scope of Business:
Business includes all activities connected with
production, trade, banking, finance, insurance, agency,
advertising, packaging and numerous other related activities.
Business also includes all efforts to associate with restrictions
and government requirements and obligation of consumers’
employees’ owners’ and to other interest groups.
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Business Environment:
No business organizations functions in a vacuum. Every
business needs to take decisions and strategies purveying under
the many internal and external factors. The sum all those
factors and forces which have a greater impact on the business
decisions are collectively called as Environment.
Business Environment Meaning:
Business environment refers to all those internal and
external factors which impact the functioning/performance of a
firm and/or its decision making particularly strategies.
According to Gerald Bell:
“An organization external environment consists of
those things outside an organization such as customers,
competitors, government units, suppliers, financial firms and
labour pools that are relevant to an organization’s operations”
Thus, it can be said environment as “the set of external
factors such as the economic factors, socio-cultural factors, and
government factors demographic factors geophysical factors,
which are uncontrollable in nature and affects the business
decisions of a firma or company.
Political Environment:
It refers to the influence exerted by the three political
institutions viz., legislature, executive and the judiciary in
shaping directing developing and controlling business
activities.
INDIAN BUSINESS ENVIRONMENT
Technological environment:
It is the systematic application of scientific or other
organized knowledge to practical tasks. Its is through business
technology reaches people.
Economic environment:
It refers to all forces, which have an economic impact
on business industrial production, agriculture, planning, basic
economic philosophy, infrastructure, national income, per
capita income, money supply, population savings etc,
Social cultural environment:
Such factors are out of company’s gate include peoples
attitude to work and wealth, role of family, relation and
education, ethical issues, and social responsibilities of business.
Natural environment:
Business cannot bear the effects of natural hazards for
example drought, poverty and earthquake. Businesses still find
himself helpless before mighty nature.
Global environment:
It refers to international trade wherein currency
diffentiation, language, international markets etc. The business
is reckoned t view as a global perspective.
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Types of Business Environment:
The business environment can be divided into two
ways.
(A) THE MICRO ENVIRONMENT OF BUSINESS and
(B) THE MACRO ENVIRONMENT OF BUSINESS
THE MICRO ENVIRONMENT OF BUSINESS
The micro environment of business consists of the
forces in the company’s immediate environment that affects the
performance of the company. These forces are more closely
linked with the business than the macro factors.
According to Philip Kotler:
“The micro environment consists of the actors in the
company’s immediate environment that affects the
performance of the company. These include the suppliers,
marketing intermediaries, competitors, customers and the
public.
The micro environment factors are discussed in detail as
follows.
Suppliers:
The important force in the micro environment of a
company is the suppliers i.e., those who supply the inputs like
raw materials and components to the company.
Importance;
INDIAN BUSINESS ENVIRONMENT
• For the smooth functioning of the business it is very
important to have reliable source of supply.
• Uncertainty regarding the supply or other supply
problems will compel the companies to maintain high
inventories which will cause increase in costs.
It is very risky to depend on a single supplier because a
strike, lock out or any other production problem with that
supplier may seriously affect the company, similarly a change
in the attitude of behavior of the supplier may also affect the
company. Hence, multiple sources of supply often help reduce
such risks.
Many companies go for pertanising/relationship
marketing because of scarcity of resources and to maintain
healthy supply from the suppliers in international level.
Customers:
The customers have a direct impact on the business,
companies go to create and sustain customers for continuity of
business. A company may have different categories of
customers viz,
 Industrial customers
 Retailers customers’
 Wholesalers customers
 Government bodies customer’
 Foreign customers
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Labour:
In big organizations where hundreds of workers are
employed, the labour force is organized in the form of trade
unions. The trade unions interact with the management for
higher wages and bonus, better working conditions etc. They
pressurize the management for the fulfillment of their demands
and resort to go slow tactics, strikes gherao.
Competitors:
Competitors play a vital role in running the business
enterprise; business has to adjust its various business activities
according to the behavior of the competitors. They are various
types of competitors:
1. Desire Competition. This type of competition generally
found in where the countries having low income and
the unsatisfied customers. Such a countries the basic
Task of buying products go to either he or she has to
buy T V or refrigerator or washing machine. This type
of competition among desires is termed as desire
competition.
2. Generic competition: generic competition arises where
the consumers has many option in single line of
products. For example one may have options in
investing the money either in UTI or post office or
banks. It is called generic competition.
INDIAN BUSINESS ENVIRONMENT
3. Product form competition: in this type of competition
the consumer has to choose between different forms of
the product. For example if the consumer decides to go
for a washing machine the next question which form of
the washing machine semi automatic or fully automatic
front loading or top loading etc.
4. Brand competition: this type of competition arises
where consumers has many brands in similar products.
The marketer in this regarding needs to create brand
demand for the products.
Marketing intermediaries:
The marketing intermediaries are those firms aid the
company in promoting, selling, and distributing its goods to
final buyers.
The marketing intermediaries include middlemen such
as agents and merchants who “help the company find
customers or close sales with them”. There are three
intermediaries called
Physical distribution firms which assist the company in
stocking an moving goods from their origin to their
destination” such as warehouses and transportation firms
Marketing services agents which assist the company in
targeting and promoting its products to the right markets such
as advertising agencies, marketing research firms media firms
and consulting firms
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Financial intermediaries: Which finance marketing activities
and insure business risks.
Financiers:
Another important micro environment factor is the
financiers of the company. Besides the financing capabilities
their policies and strategies attitudes (including attitude
towards risk) ability to provide non financial assistance etc. are
very important
Public:
A company may encounter certain publics in its
environment. A public is any group that has an actual or
potential interest in or impact on an organization’s ability to
achieve its interests. Media public, citizen action publics and
local publics are some examples.
Micro environment:
The macro environment of business includes activities
which are uncontrollable and need proper nourishment and
attention on the part of a business enterprise.
According to Hill and Jones “The macro environment consists
of the broader economic social demographic political legal and
technological setting within which the industry and the
company are placed”.
INDIAN BUSINESS ENVIRONMENT
According to Elbing “Macro environment is the indirect action
environment as it may not have an immediate direct effect on
the operation but nevertheless have influence”.
The important macro environmental factors are explained as
follows:
1. Economic environment:
Business fortunes and strategies are influenced by the
economic characteristics and economic policy dimensions. The
economic environment includes the structure and nature of the
economy the stage of development of he economy, economic
resources the level of income, the distribution of income and
assets global economic linkages economic etc.
Nature of economy:
The nature of economy is widely classified the
economies on the basis of the per capita income. Countries are
broadly classified as
Low income economies: are economies with very low level of
per capita income.
High income economies: are countries with very rich income
per capita.
Middle income economies: are economies falling between low
income and high income economies.
Structure of the economy:
The structure of economy is classified on the basis of
contribution from many sectors like
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Primary sector mostly agriculture whatever was decided by parliament. The judiciary has to
Secondary sector are large, medium and small scale industries. ensure that both the legislature and executive function in public
Economic Policies: interest and within the boundaries of constitution.
There are several economic policies which can have a The political legal environment of a business depends
very great impact on business. on:
Industrial policy. 1. Legal rules for business for its formulation and
Trade policy implementation, its efficiency and effectiveness.
Foreign exchange policy 2. Defense and military policy impact of defines on
Foreign investment and technology policy industrial enterprise in terms of trading with potential
Fiscal policy enemies, purchasing policies strategic industrial
Monetary policy: development etc.
Economic Conditions: 3. Political stability impact of factors like civil war, the
General economic conditions affect the business. declaration of presidents rule and emergency changes in
Economic pass through periods of boom and recession. A the form and structure of government administration.
boom is characterized by high level of output, employment and 4. Political organization ideology of the ruling
rising demand and prices. A recession has the opposite of these government philosophy of the political parties’ degree
characteristics. and extent of the bureaucratic delays, red tapism, the
influence of premier groups the question of donation by
2. Political and Government Environment: business houses to political parties.
Political environment refers to the influence exerted by 5. Flexibility and adaptability of law constitutional
the three political institutions: amendments their urgency and frequency, velocity of
1. Legislature public policies.
2. Executive 6. Foreign policy alignment or non-alignment tariffs
3. Judiciary customers’ unions’ etc image of the country and its
The legislature decides on a particular course of action. leaders.
Government is the executive and its job is to implement

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In order to survive in today’s competitive world, a

3. Socio-Cultural Environment: business has to adopt technological changes from time to time.
Socio cultural factors include people’s attitude to work It is the systematic application of scientific or other organized
and health, role of family, marriage, religion and education, knowledge to practical tasks. In other words technology
ethical issues, social responsibility of business. include the tools both machines (hard technology) and ways of
thinking (soft technology) –available to solve problems and
4. Natural environment: promote progress between among and between societies. Its is
In natural environment we include geographical and through business technology reaches people. There are two
ecological factors. Both these factors are relevant to the functions of business in creation of customers those are
business. These factors include: Marketing and innovation. Marketing needs research based
1. Natural resources endowment. decisions where the research identifies the consumer needs and
2. weather and climate conditions provides information for target setting and programming the
3. Topographical factors. complete marketing effort.
4. location aspects Innovation may be defined as the technical industrial and
5. Port facilities etc. commercial steps which lead to the marketing of new
manufactured products and to commercial use of new technical
5. Demographic Environment: processes an equipment.
Demographic factors include: 1. Radical innovation: a basic technological innovation that
1. Size, growth rate, age composition, sex composition, establishes a new functionality (e.g., steam engine or
etc of population. steamboat)
2. Family size 2. Incremental innovation- a change in an existing technology
3. Economic stratification of population system that does not alter functionality but incrementally
4. Educational level improves performance features safety or quality or lowers
5. Caste, religion etc. cost.
3. Next generation technology innovation: a change in an
6. Technological environment; existing technology system that does not alter functioning

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but dramatically improves performance feature safety or

quality or lowers cost and opens up new applications.

7. International environment:
Implications of global or international environment are
as follows:
 Due to liberalization Indian companies are forced to view
business issues from the global perspective.
 Safe and protected markets are o longer there world is
becoming small in size due to advanced means of transport
and communication facilities.
 Learning of foreign languages is a must for every business
manager.
 Acquiring familiarity with foreign currencies is also mist
 Facing political and legal uncertainties is inevitable.
 To survive amidst intense competition every businessman
should try to adapt his products to different customer needs
and tastes.

Environmental Analysis of Business Decision Making