ENVIORNMENTAL ANALYSIS Environment consists of atoms and d molecules, l l agglomeration l ti of f things in motion, alive of men and emotions, emotions

of physical and social laws, social ideas, norms of action, forces and resistances Ch Chester I Barnad. d Environment is the totality of forces and institutions that are external and potentially relevant to the firm - Kotler

Two Categories of Environment :

(A)Direct Action Environment a. Suppliers b. Customers c. Labour Union d. Competitors e. Government laws and agencies (B) Indirect Action Environment a. Interest Group b Socio Cultural Environment b. c. Economy d Political Environment d. e. International agencies

Some Observation environment

about

1 It consists 1. i t of f totality t t lit of f forces, f which hi h are external and beyond the control of management. 2. Environment country 3. Various forces may to differ from country. are

environment forces interrelated.

4. Business environment is complex. 5. Macro environment is dynamic and everchanging. g g 6. Environment must take into account not only the current adaptations, but also future adaptations. p

Why Environment Analysis

a To a. T

identify id tif major j profit fit opportunities. b To predict future changes. b. changes c. To keep trace of changes. d To d. T help h l in i prioritisation i ii i of f major objectives. e To e. T articulate ti l t and d separate t individual biases from realities.

Analysis of p Components

Environmental

Economic Environment Technological Environment Competitive p Environment Political Environment Demographic Environment Socio Cultural Environment

A.

Economic Environment
Per Capita Income Pattern of Distribution Income levels and growth patterns Savings and Debt patterns Changes expected in future pattern of expenditure.

- General Economic Condition

- Industrial Condition
Is it a g growth industry? y Do the needs of the customer undergo changes? Degree of stability and demand for industrial products; stability depends on - availability y of substitutes - durability - necessities - life cycle of product

- Network of Supplies of inputs, such as

A. Natural Resources
Finite Forest Food Infinite Water, air

Non renewal energy Oil, Coal, Minerals Natural resources is a major consideration in determining location of a firm.

B. Capital i l C. Labour like natural resources, sources of f cheap h l labour b is i a major j factor f t in i deciding about location. D Managerial D. M i l Competencies. C i

B. Technological Environment Technology is important because

it affects the efficiency with which the products is produced. of pervasive influence, not only through existing products, but through new product. product the gap between basic development and technological application is fast reducing. technological t h l i l development d l t pace has h been different in different placesnecessity for planned phasing out of technological change. change

C. Competitive Environment
Different /Cost Strategy Entry Strategy Market share analysis and critical iti l mass Growth Strategy Profitability P fi bili Cost of Entry/Exit Aggressive of competitive behaviour Nature N t of f Product-Durable P d t D bl product or less durable

D. Political Environment
Political P li i l turmoil il and d instability i bili Strength of the Party in power Commercial/linguistic problem Changing Business Laws
Confiscation of property Expropriation with compensation Restriction in market share Employment police Locally shared ownership Repatriation of money Unilateral revision of contracts

Governments G t foreign f i policy li Governments influences on pricing, employment, production, competition and other decisions Regulatory Role of Government Industries (Dev. & Regulation) Act MRTP Import and Export Control Act FERA

Protective Laws To protect against unfair competition To protect workers from exploitation To p protect consumers To practice commitment
Governments role in providing fiscal and monetary y assistance. Governments role in participating directly in projects (as Public sector and Joint Sector).

E. Demographic Environment

Increase I in i population l ti Aging pattern Geographical shift in population Literacy y of p population p

F. Socio Cultural Environment

S i Cultural Socio C l l factors f
Attitudes Values Desires Expectation Degrees of intelligence and education

H they How h affect ff

Priorities for products Quality Price + Social Welfare Attitudes towards work Attitudes towards Authority Structure

Beliefs + Customs of people Organizational Traditions climate Social Institutions Class Structure Social g group pp pressure and dynamic Expectation from organization Social Responsibility Social Welfare Activities

Relative Importance of Different Components of Environment

Collings Aguilar and Keegen Market M k and d Competitive forces Socioeconomic/ Government forces Suppliers/ Technology How many said that this factor is most important 75%

60%

25%

15%

15%

10%

Indian Study
Economic/Regulatory condition competition Most important Next important

Factors influencing the extent of

Environmental Scanning Factors
Nature of Business Age of enterprise Size of organization Nature of organization Geographical Dimension

Requires More Scanning

To diversify

Requires Less Scanning

To remain in same business

New with less experienced Old with more people experienced people Large organization Competitive Multinational (Because they have to consider international forces also) ) More Volatile Small Organization Monopolistic National

Volatility of Environment

Less

M Managerial i lA Attitude i d d dynamic i Dynamic D i Organization O i i type Managerial Caliber Skilled managers Skilled Managers

L Less Less

Strategies for coping with environment

Buffering through stock piling piling, preventive maintenance, carrying sufficient inventory of output Levelling price incentive for services at low demand times, such as STD calls at night, low price of refrigerators in winter Anticipation Rationing Dominating through contracts with environment forces Changing when adaptation is not possible change your own product.

Techniques for Environmental Search and Analysis

1. I I. Information gathering Verbal information (Radio, TV, Discussions) Spying for gathering trade secrets Forecasting
F Factor li listing i techniques h i Favourable and unfavourables factors are listed and impact is assessed intuitively, No quantitative analysis done Time series Analysis Non linear projection Causal modelling correlation and statistical techniques Economic models Jury of Opinion Sales force composite Customer expectation method Delphi

II. III. IV. V. VI. VII.