Business Environment

Business environment consists of all those factors that have a bearing on the business.
The survival and success of a business depend on its innate strength
-resources at its command including physical resources, financial resources, humanresources,
skill and organization,
- its adaptability to the environment and
- the extent to which the environment is favourable to the development of the organization.
Types of Environment: There are generally two types of environment,
Internal environment, and
External environment.
Internal environment, i.e. factors internal to firm. The internal factors are generally regarded as
controllable factors because the company has control over these factors; It can alter or modify
such factors as its personnel, physical facilities, organization and functional means such as
marketing mix to suit the environment.

External environment, i.e. factors external to the firm which have relevance to it. The external
factors are beyond the control of a company. The external factors such as economic factors,
socio-cultural factors, government and legal factors, demographic factors, geo-physical factors
are regarded as uncontrollable factors.
Some of the external factors have a direct and intimate impact on the firm (like the supplier and
distributor of the firm). These factors are classified as micro environment also known as task
environment and operating environment.
There are other external factors which affect an industry very generally (such as industrial
policy, demographic factors etc.) They constitute what is called macro environment general
environment or remote environment.
The business environment may be considered at three levels.
 Internal environment
 Micro environment/task environment/operating environment.
 Macro environment/general environment/ remote environment.
Internal Environment
The important internal factors which have a bearing on the strategy are as below.
1. Value System: The value system of the founders and those at the top has an important
effect on the choice of business, the mission and objectives of the organization, business
policies and practices.
After EID Parry group was taken over by the Murugappa group, one of the most
profitable businesses (liquor) did not fit into the value system of Murugappa group.
2. Mission and Objectives: The business domain of the company, priorities, direction of the
development, business philosophy, business policy etc. is guided by the mission and
objectives of the company. Ranbaxy’s thrust in to the foreign markets and development
 have been driven by its mission “to become a research based international pharmaceutical
company”
3. Management Structure and Nature: Some management style delay decision while
others facilitate quick decision making. The quality of Board of Directors is very critical
factor
for the development and performance of company. Financial institutions have a very large
shareholding in many companies. The stand of nominees of financial institutions could
be very decisive in several critical instances
4. Internal Power Relationship: Factor like the amount of supports top management enjoys
from different levels of employees shareholders, Board of Directors, have important
influence on the influence on the decisions and their implementation.
5. Human Resources: The characteristics of human resourceslike skill,quality, morale,
commitment, attitude etc. could contribute to the strength and weakness of an
organization.
John Towers, M. D, Rovers Group, observed that a Japanese company of 30000 employees is
30,000 process improvers. In a western company, it is 2000 process improvers and 28,000
employees. And in Indian company?
6. Company Image and Brand Equity: The image of the company matters while raising
finance, forming joint ventures or other alliances, soliciting market intermediaries
entering purchase and sales contract launching new products etc. Brand equity is also
relevant in several of these cases.
7. Miscellaneous Factors: There are other factors which contribute to the business success
or failure or influence the decision making. They are
i) Physical Assets and Facilities like the production capacity, technology and efficiency of
productive apparatus, distribution logistics etc. are among the factors which influence the
competitiveness of a firm.
ii) R & D and Technological capabilities determine a company’s ability to innovate and
compete.
iiiMarketing Resources like the organization for marketing, quality of the marketing men,
brand equity and distribution network have a direct bearing on marketing efficiency.
ivFinancial Factors like financial policies, financial position and capital structure are also
important internal environment affecting business performances strategic decisions.
External EnvironmentThis consists of a micro environment and a macro environment
Micro Environment: Task Environment and Operating Environment
The micro environment consists of the actors in the company’s immediate environment that
affects the performance of the company. These include suppliers, marketing intermediaries,
competitors, customers and the public.
SuppliersThose who supply the inputs like raw materials and components to the company.
Uncertainty regarding the supply or other supply constraints often compels companies to
maintain high inventories causing costs increases.
Vertical integration, where feasible, helps solve the supply problem. E.g. Nirma has gone for a
mammoth backward integration. In many cases outsourcing is beneficial.
It is very risky to depend upon single supplier because a strike, lockout or any other production
problem with that supplier may seriously affect the company. Hence multiple source of supply
often help reduce such risks.
Customers A company may have different categories of customers like individuals, household,
industries, commercial establishment, government and other institutions. e.g. customer of a tyre
company may include individual automobile owners, automobile manufacturers, public sector
transport undertakings and other transport operators.
Depending on a single customer is often too risky because it may be place the company in poor
bargaining position, apart from the risks of losing business consequent to the winding up of
business by the customer or due to the customer’s switching over to the competitors of the
company.
The Indian market is becoming more exposed to global competition and the Indian customer is
becoming more global.
Competitors: A firm’s competitor’s include not only the other firms which market same or
similar product but also all those who compete for the discretionary income of the consumers.
For example the competition for a company’s television may come not only from other TV
manufactures but from two-wheelers, refrigerators, washing machines, stereo sets etc. This
competition among these may be described as desired competition as task year is to influence the
basic desire of the customer.
If the consumer decides to spend his discretionary income on recreation he will be confronted
with a number of alternatives like TV, stereo, three –in-one etc. The competition among such
alternatives is called which satisfy a particular category is called generic competition. If the
consumer decides to go in for a TV the next question which form of TV LED, LCD, Plasma, 3D
etc. This is a product form competition and finally the consumer encounters the brand
competition.
Marketing Intermediaries: The immediate environment of a company may consists of a number
of marketing intermediaries which are firms that aid the company in promoting, selling and
distributing its goods to final buyers. The marketing intermediaries include a middlemen such as
 Agents and merchants who help the company find customers or close sales with them,
 Physical distribution firms which assist the company in stocking and moving goods from their
origin to their destination (warehouses and transportation firms)
Marketing services agencies which assist the companies in targeting and promoting its
products to the right markets such as advertising agencies, marking research firms media firms
and consulting firms and
Financial intermediaries, which finance marketing activities and ensure business risks.
Marketing intermediaries are vital links between the company and the final consumers. A
disturbance or wrong choice of the link may cost the company very heavily.
Financiers: Besides the financial capabilities, their policies and strategies, attitudes, ability to
provide non financial assistance etc. are very important.
Publics: A public is any group that has an actual or potential interest in or impact on an
organization’s ability to achieve its interests. Environmental pollution is an issue often raised by
a number of local publics.
Some actions of the publics may cause problem for companies while some publics are any
opportunity for the business.

Macro Environment: The macro environment is also known as general environment and
remote environment the macro forces are generally more uncontrollable than the micro forces.
When micro environment is uncontrollable the success of the company depends on its
adaptability to the environment. If for example the cost of the imported component increases, a
solution may be their domestic manufacture. Important macro environment factors include
economic environment, political and regulatory environment, social / cultural environment and
global environment.
Global Environment: Even domestic business is affected by certain global factors. The global
environment refers to those global factors which are relevant to business, such as the WTO
principles and agreements; other international conventions / protocols etc; economic business
conditions / sentiments in other countries. Similarly there are certain developments like a hike in
crude oil prices which have global impact.
Economic conditions in other countries may affect the business for examples if the economic
conditions in companies’ export markets are sound, exports prospects are good and vice a versa.
Development in information and communication technologies facilities fast cross border spread
of cultures, significantly influencing attitudes, aspirations tastes, prferences and even customs,
traditions and values.

• Economic conditions in other countries may affect the business for example if the economic
conditions in companies’ export markets are sound, exports prospects are good and vice a versa.

• Development in information and communication technologies facilities

• fast cross border spread of cultures,

• significantly influencing attitudes,

• Aspirations,

• tastes,

• preferences and

• even customs, traditions and values.