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1.
2.
Features of Environment
Internal Environment
2.2
External Environment
3.
4.
5.
6.
7.
8.
9.
7.1
7.2
7.3
Business Ethics
8.1
8.2
3. Multi-faceted:
The environment is perceived differently by different perceivers or observers. For example, the same new
development like nuclear agreement between America and India, is perceived as opportunity by some
(Congress Party) while threat by others (Opposition Party).
OR,
Environmental changes are frequent but their shape and character depends on the knowledge & experience of
the observer. A particular change in the environment may be viewed differently by different businessmen. This
change is welcomed as an opportunity by some organizations while some others take it as a threat for their
survival.
5. Far-reaching impact:
Business enterprise operates within a given environment and gets affected by it. The growth and profitability of
business depends critically on environment. Thus, the environment has a far- reaching impact on business
organizations.
6. Uncertainty:
It is very difficult to predict the changes of Business Environment. As environment is changing very fast for
example in IT, fashion industry frequent and fast changes are taking place.
2. TYPES OF BUSINESS ENVIRONMENT
A business organization can not exist a vacuum. It needs living persons, natural resources and places and things
to exist. The sum of all these factors and forces is called the business environment.
Business environment is broadly categorized into two categories:
2.1
Internal Environment (Micro environment)
2.2
External Environment (Macro environment)
a)
Task Environment
b)
General Environment
2.1 Internal Environment (Micro Environment)
Internal environment refers to the factors internal to the firm i.e., factors existing within a business firm. These
factors are generally controllable because the company has control over them and determine the potential of a
company to meet the environment challenges. It provides strengths and weakness.
Important Internal Factors/Forces
The important internal factors are as follows
i) Organizational goals and policies: Goals are desired outcomes. They state end results. They can be
multiple as well as conflicting. They form a hierarchy. Organization activities must be conducted within
the framework of goals.
Policies are guidelines for organization to conduct any activities. Organization makes different policies
for different objectives.
ii) Culture
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It is widely acknowledged fact that any business organization is normally undertaken for profit
maximization. Nonetheless, persons holding top positions in certain modern corporate enterprises have
some values which influence their policies, norms, working language, systems, symbols practices and
overall internal environment. This may be refer as culture of the organization which is the collective
behavior of humans that are part of an organization. The extent to which the culture of the organization
is shared by all, leads to an important factor contributing to success.
iii)
Organizational resources
Resource availability sets a limit on organizational activities. They can be physical, human, financial,
information and technical. The recent developments in information technology have greatly facilitated
the activities of organization.
iv)
Organizational structure
It is the overall framework for organizational roles, rules, hierarchy, relations and authority. It is the
design of jobs and relationships. It is concerned with the division of activities (differentiation) and
coordination of efforts (integration). Organizations must function within the boundary of their structure.
Customers
They are highly influential as they are the central point of every business. Success of business largely
depends on identifying he need, desire, tastes liking etc. of a customers.
b)
Suppliers
Business enterprises requires a number of suppliers, who supply raw materials and components to the
company. It is an important force of the micro environment of a company. Long lasting relationships
with suppliers are essential.
c)
Competitors
Activities of a business adjust according to the actions and reactions of a competitors. This factor should
be known to a company as the upcoming profit or revenue will only be driven when this factor is in
control.
d)
Pressure Groups
They are special interest groups. They are organized to use the political process to advance their position
on a particular issue. They force government to enact or withdraw laws to protect their interest.
Examples are consumer association, environmental groups, women groups etc.
e)
Financial Institutions
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Organizations depend on financial institutions for the supply of funds. They can be banks, insurance
companies and other capital market institutions. Effective working relationships with financial
institutions is important to facilitate fund mobilization.
f)
Government
Governments are the regulating body of business activities. Government forms rules and regulation.
Business activities must be performs according to the government. There is also certain impact of
business upon the government.
g)
Labour Unions
They represent the problems and feelings of their members to management. Organizations must manage
their labour relations effectively. They should cooperate with labour unions for collective bargaining.
Nepalese organizations need to deal with multiple labour unions affiliated to various political parties,
h)
Communication Media
It may be in print, visual, audio and others. Organization must deal effectively with media. Every action
of the organization is subject to media scrutiny. Public relations programmes are needed to promote and
protest the image of the organization.
2.2.2 General Environment
General Environment is the most important dimension of business environment as businessman
cannot influence or change the components of general environment rather he has to change his
plans and policies according to the changes taking place in general environment. It is also known
as macro environment. The elements of general environment are beyond the organizational control.
General environment consists of the following elements.
A.
1. Political Environment:
Political environment of business refers to the government actions which affect the operation of a business.
These actions may be on local, regional, national or international level. Managers pay close attention to the
political environment to measure how government actions will affect their company.
The political segment represents how organizations try to influence government and they understand the
influences of government actions on their strategic move. The basic components of political environment are:
i) Constitution: Constitution is the fundamental law of the country. It is the duty of every citizen to follow the
constitution.
ii) Political Philosophy (Ideology): It may be defined as a set of ideas, principles and philosophy. The main
political ideologies are:
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Democratic: Under democratic ideology, the power is vested on people. Fundamental rights are ensured.
The private sector is regarded as the indispensable part of development of the country.
Totalitarian: Under it, the power is centralized to the government that does not tolerate parties of
differing opinion. The private sector doesnt flourish under such ideology.
Mix: A mix of both is based on power sharing.
Political philosophies influence organization's activities. Democracy provides greater role to private sector.
Totalitarianism provides greater role to state. Mixed philosophies provide roles to both private sectors and state.
iii) Political Parties: Political parties are regarded as the pillars of democratic system. They try to win the
support of the people to elect their representatives and form legislation.
iv) Political Institution (Government and its Branches): It involves legislative, executive, judiciary and other
constitutional bodies.
Legislative (Parliament): It main responsibility is formulation and enactment of law. It also forms the
executive i.e. the government.
Executive (Government): It refers to the organ of the state that is responsible for the overall
administration of the nation. It is composed of the government and its organs as bureaucracy, army and
police.
Judiciary (Court of Law): It refers to the court of law. It is responsible for settling disputes and
interpreting the rules and laws if required. It has the right of judicial review under the constitution.
Other Constitutional Bodies: They involve the constitutional bodies created by law. Some of them are;
The Commission for the Investigation of Abuse of Authority, Office of the Auditor General, Federal
Public Service Commission, Election Commission and National Human Rights Commission:
2. Legal Environment:
The legal environment of a business is composed of the constitution, business related laws, courts and law
administration. The legislative framework of a country provides both opportunities and threats to the business.
The components of the legal environment are mentioned below:
i) Constitution: It is the fundamental law of a country.
ii) Business Law: They consist of an array of laws that regulate business activities.
iii) Courts of law: They are the institutions to define and solve legal disputes.
iv) Law administrators: They are the various law enforcement agencies, which ensure implementation of the
laws as well as judgments made by the courts of law.
OR,
Legal environment refers to all the legal surrounding that affects organization's activities. It consists of an array
of acts, rules, regulations, precedent, institutions and processes. It defines what organizations can be cannot do.
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Regulations activities through legal provisions relating to licencing, employment, monopoly, foreign
investment, foreign exchange, environment protection, consumer protection, product safety, industrial
location, imports, exports, pricing, and taxation etc.
Organization must ensure that their activities conform to the low of the land. They must comply with
legal provisions in force. Changes in law affect strategy.
Industrial policy: It is concerned with industrial licensing, location, incentives, facilities, foreign
investment, technology transfer, and nationalization of industries.
iii) Economic Conditions: They represent economic soundness of a country. They are represented by;
Gross domestic product (GDP): It is the broadest measure of a countrys economy. It represents the total
market value of all goods and services produced in a country during a given year.
Inflation: It represents changes in the level of retail prices for the basic consumer basket. Inflation is
tied directly to the purchasing power of a currency.
Employment indicators: They involve number of jobs created or destructed; percentages of active and
unemployed workforce. They indicate the economic health of a country.
Balance of payment: It represents the ratio between the amount of payments received from abroad and
the amount of payments going abroad.
Income distribution: It shows how a notions total GDP is distributed amongst its population.
Business Cycles: They affect the health of organization. They may be depression (contraction), recovery
(revival), prosperity and recession.
iv) Regional Economic Groups (Integration): Regional and global economic integration are also the
important components of economic environment. Economic integration facilitates removing or minimizing
tariffs and other restrictions on economy at international level. It promotes cooperation and free trade among the
countries. Economic integration has been promoted by SAARC, APEC, ASEAN, EU and the WTO.
C.
Socio-Cultural Environment
A business is a social system. It conducts its activities in the society. Socio-cultural environment is the sum of
all the cultural elements that affect the operation of a business directly or indirectly.
The norms, values, beliefs, attitudes, language, symbols, and behaviour which are learned and developed over
time collectively from culture. It is a complex phenomenon and transfers over generations. Some of the
important constituents of socio-cultural environment are mentioned below:
i) Demographics: Demography is the study of human population. It consists of composition of population
based on age, groups, male and female, urbanization, migration of people etc. it determines the market
segmentation of business. Therefore, it is essential for the managers to make detailed analysis of the
demographic structure of nation.
ii) Social Institutions: Social institution includes family, reference groups and social class.
Family: Family is the primary unit of society which involve members relation with other families.
Reference Groups: Reference group represents the prestigious individuals whose activities may bring
change in attitude and life style of people.
Social Class: Social class is the division of society on the basis like upper, middle and lower economic
group. The division of social institution changes attitudes and beliefs of people that affect business.
Attitudes: It is a positive or negative concept towards product, person, organization, and other
elements.
Beliefs: Beliefs are descriptive thoughts about something. They are based on knowledge,
experience and religion.
Religion: Religion reflects and shapes culture. It is shared beliefs, values and rituals.
Language: It is a medium of communication. It also reflects culture.
Education: It is a continuous process of learning. Education is very important for developing
and nurturing culture.
Family structure and social organizations: Social organizations are in the form of common
interest group and communities.
D.
Technological Environment
The technological segment of business environment includes the institutions and activities involved in creating
new knowledge and translating it into new products, processes, and materials. Technology has pervasive and
diversified scope. Hence, it affects many parts of a society. Given the rapid pace of technological change, it is
vital for firms to study the technological segment thoroughly. The importance is that early adopters of new
technology often achieve higher market shares and earn higher returns. The following are the important
elements of technological environment.
Level of technology: It may be manual, mechanized, automated, computerized and robotized technology.
Pace of change: It is the stage and speed of the technological change.
Technology transfer: It implies technology imported from foreign countries.
Research and development budget: It is the spending by the government or business organizations for
technological adaptation, up-gradation and development.