What is Business???

Business may be understood as the organized

efforts of enterprises to supply consumers with
goods and services for a profit

Contemporary Business
goals

Profit (Bottom-line)
Growth
Market Leadership
Customer satisfaction
Employee satisfaction
Quality Products & Services
Service to Society

Characteristics of
Business

Government Control

To correct market failures in case of

externalities
To create stable business conditions
(stimulate Aggregate Demand) through
monetary & fiscal regulation
To provide Public goods

BUSINESS CHALLENGES

Managing Bottom line

Meeting stakeholders expectations

Developing and retaining top talent

Creating a customer responsive organization

Diminishing time to market

Market agility

Pricing and quality

What do you
Environment???

mean

by

Business

The environment of any organization is the

aggregate of all conditions, events and
influences that surround and affect it.
Characteristics of Business Environment:
Complex
Dynamic
Multi-faceted
Far- reaching impact

Why Study Business Environment

Development of broad strategies to ensure

sustainability

To foresee the impact of socio-economic changes at

the national and international levels on firms ability

Analysis of competitors strategies and formulation

of effective counter measures

To keep oneself dynamic

Types of Environment
Internal Environment
External Environment

Micro environment
Macro environment
Economic
Non Economic

Internal Environment

Refers

to

all

the

factors

that

are

within

an

organization which impart strengths or cause

weaknesses of strategic nature.

Controllable factors. These include:

Value system

Mission and Objectives

Management Structure and Nature

Components of Internal
Environment

Human Resources

Company Image and Brand Equity

Other Factors

Physical Assets and Facilities

R & D and Technological Capabilities

Marketing Resources

Financial Resources

External Environment

Includes all factors outside the organization

which provide opportunities or pose threats
to the organization

Uncontrollable factors

Consists
of
environment

Micro

and

Macro

Micro Environment

It consists of the factors in the

companys immediate environment

that affect the performance of the
company.

Micro Environment Factors

Suppliers
Customers
Marketing Intermediaries
Competitors
Publics
Financial Community

Micro Environment of a typical car

manufacturer
Potential
Supplier
Components
Supplier
Local
Communities

Potential
Customers
Stakeholders

Pressure
Groups

Government

Customers
Car
Manufacturer

Competitors

Car Dealers
Potential
Dealers

For
Customers

For
Supplies

Macro Environment
It comprises general trends and forces
that may not immediately affect the
organization but sooner or later will
alter the way organization operates.
Macro Environment : Economic
Non Economic

Economic Environment

Economic stages that exists at a given time in a country

Economic system that is adopted by a country for
example. Capitalistic, Socialistic or Mixed Economy
Economic planning, such as five year plans, budgets, etc.
Economic policies for example, monetary, industrial and
fiscal policies
Economic Indices such as National Income, Per Capital
Income, Disposable Income, Rate of growth of GNP,
Distribution of Income, Rate of savings, Balance of
Payments etc.
Economic Problems
Functioning of economy

Non Economic Environment

Regulatory Environment

Socio- Cultural Environment

Demographic Environment

Technological Environment

Political Environment

Non- Economic Environment

Cultural Environment

Social Customs & Rituals and practices

Lifestyle patterns

Family structure

Role & position of men, women, children and

aged in family & society

PESTEL-analysis
19

Demographic factors
population
Changes in values/
attitudes
Changes in lifestyle
Attitudes toward work/
spare time
Education levels
Work environment factors
Health concerns
Changes in income distribution
Fads and fancies.
Media pressure

Socio-cultural
factors

Non- Economic Environment

Demographic Environment

Growth of population

Age Composition

Life Expectancy

Sex Ratio

Fertility and Mortality rates

Inter-state migration

Macro Environment

Technological Environment

Sources of technology

Technological development

Impact of technology
Political Environment

Political parties in power

Political Philosophy

22

PESTEL-analysis
Political factors

Global, regional,local and

national .
Political parties differing policies
Proximity of next election
Taxation
Integration with other jurisdictions
Globalisation
Moore can also be politics
with a small p

Macro Environment

Regulatory Environment

Constitutional framework

Policies relating
investment

Policies related to the public sector, SSIs,

development of backward areas and control of
environmental pollution

to

pricing

and

foreign

24

PESTEL-analysis
Legal factors
Competition laws
Labour market
legislation
Standards
Information disclosure
Intellectual property laws
Laws can be an opportunity as
well as a problem.

Eg car emission laws,

25

PESTEL-analysis
Global warming
Pollution factors
Green energy
Energy conservation
Recycling
Natural resource
depletion

Environmental
factors

International Environment
Important factors that operate at global level which have an impact
on organization are:

Growth of world economy

Distribution of world GDP

International institutions IMF,WTO ILO

Economic relations between nations

Global human resource-nature and quality of skills, mobility of labor

Global technology and quality standards

Global demographic patterns

WTO and its relevance for Indian

companies
The main guidelines of WTO are:

Trade without discrimination

Growing market access

Promotion of fair competition

The response of Indian government
to WTO
constitutes the following actions

Reduction of tariffs

Opening Indian markets for Global Players

Rationalizing industrial licensing and removal of

controls on the size of operations

WTO and its relevance for Indian

companies
The impact of WTO on Indian companies is likely
to include the following :

Increasing competition

Consolidation of activities in core competence

areas

Improvements in infrastructure to negate

structural disadvantages.

Shake out of minor players and M&As to gain

global scale.

Environmental Analysis
Environmental Scanning
The process by which organizations monitor
their opportunities and threats affecting
their business is known as environmental
scanning
SWOT Analysis

Tools for Analyzing the

Environment

PEST Analysis
PESTLE
STEEPLE
S - Social
T - Technological
E - Economic
E - Environmental
P - Political
L - Legal
E - Ethical

Overview of Business Environment

MACRO ENVIRONMENT

ECONOMIC
Environment
MICRO ENVIRONMENT
BUSINESS

Internal Environment

TECHNOLOGICAL
FACTORS

Values,
Mission & Objectives.
Human Resources,
Co. Image & Brand Equity

DEMOGRAPHIC
FACTORS
MARKETING
INTERMEDIARIES

Non - Economic

Environment

SOCIAL
CULTURAL
FACTORS

Environmental Analysis
Environmental Scanning
The process by which organizations monitor
their opportunities and threats affecting
their business is known as environmental
scanning
SWOT Analysis

Tools for Analyzing the

Environment

PEST Analysis
PESTLE
STEEPLE
S - Social
T - Technological
E - Economic
E - Environmental
P - Political
L - Legal
E - Ethical

1-34

2006 Prentice
Hall

ASSESSING THE
ENVIRONMENT
POLITICAL, ECONOMIC,

1-35

The Global Business

Environment

The Global Marketplace is complex,

interdependent, and dynamic
Challenges include politics, culture, and
technology
Managers must find a balance between
social responsibility, company image,
and competitive strategies
More focused on Global Management

2006 Prentice Hall

1-36

The Global Business

Environment

Global competition is characterized by

networks that bind countries to one
another
Globalism trends

A borderless world
Increase in exports
Increase in direct foreign investment
Dominance of trading blocs

2006 Prentice Hall

Regional Trading Blocs

1-37

The dominance of the

United States is already
over. What is emerging
is a world economy of
blocs represented by
NAFTA, The European
Union, and ASEAN.
Theres no one center
in this world economy.
- Peter Drucker
Fortune, January 12,
2004

2006 Prentice Hall

Regional Trading Blocs

1-38

TRIAD Market
European Union
Asian Market

China, Japan, South Asia

NAFTA
CAFTA

2006 Prentice Hall

The TRIAD
1-39

Three regional free-trade blocs

Grouped around three dominant

currencies

Western Europe, Asia, and North America

Euro, Yen, and Dollar

In 2004, these trade blocs were

expanding their boarders to include
neighboring countries
2006 Prentice Hall

Comparative Management in
Focus - India

1-40

India has witnessed a change in values,

habits and options during the last
decade
The economy, second fastest growing in
the world, is expected to grow close to
7% this year
Fastest growing telecom market with
more than one million new mobile phone
subscriptions per month
2006 Prentice Hall

1-41

Comparative Management in
Focus - India

Indians are buying 10,000 motorcycles a

day
India had 192 million households in 2001

Only 31.6% have a television

Only 2.5% have a car, jeep or van

Foreign investors have invested $5

billion into the Indian stock market

2006 Prentice Hall

Information Technology
1-42

Information Technology is transforming

the international managers agenda
more than any other item
Information is no longer centrally or
secretly controlled by governments
Information technology is boosting
productivity and electronic commerce
around the world

2006 Prentice Hall

1-43

The Globalization of Human

Capital

Globalization means
we share jobs as well
as goods.
- FINANCIAL TIMES,
August 27, 2003

2006 Prentice Hall

1-44

The Globalization of Human

Capital

Forrester Research predicts that 3.3

Million US jobs will move offshore by
2015
45% of the 500 US companies surveyed
state that they use a global sourcing
model

2006 Prentice Hall

The Global Managers Role

1-45

2006 Prentice Hall

1-46

The Political and Economic

Environment

One important aspect is the

phenomenon of ethnicity

Driving force behind political instability

Firms must assess political risks

Government actions that could adversely

affect the long-run profitability or value of a
firm

2006 Prentice Hall

1-47

Political Risk 7 Typical risk

events

Expropriation of corporate assets without

prompt and adequate compensation
Forced sale of equity to host-country
nationals, usually at or below
depreciated book value
Discriminatory treatment against
foreign firms in the application of
regulations or laws
Barriers to repatriation of funds (profits
or equity)
2006 Prentice Hall

1-48

Political Risk 7 Typical risk

events

Loss of technology or other intellectual

property (such as patents, trademarks,
or trade names)
Interference in managerial decision
making
Dishonesty by government officials,
including canceling or altering
contractual agreements, extortion
demands, and so forth
2006 Prentice Hall

Managing Political Risk

1-49

Avoidance either the avoidance or

withdrawal of investment in a particular
country
Adaptation adjust to the political
environment
Dependency keeping the host nation
dependent on the parent corporation
Hedging minimizing the losses
associated with political risk events
2006 Prentice Hall

Economic Risk
1-50

A countrys level of economic

development generally determines its
economic stability
Economic risk falls into 2 categories

Government changes its fiscal policies

Government modifies its foreigninvestment policies

Managers are constantly reassessing

economic risk
2006 Prentice Hall

The Legal Environment

1-51

Managers will comply with the host

countrys legal system

Common Law past court decisions act as

precedents to the interpretation of the law
Civil Law comprehensive set of laws
organized into codes, interpretation is
based on reference to codes and statues
Muslim law based on religious beliefs, it
dominates all aspects of life

2006 Prentice Hall

The Legal Environment

1-52

Commenting on Contract Law

In China, the old joke goes, a
contract is a pause in the
negotiation.
- VANESSA CHANG, KPMG PEAT MARWICK

2006 Prentice Hall

1-53

The Technological
Environment

Corporations must consider the

accelerating macro-environmental
phenomenon of technoglobalism (rapid
developments in information and
communication technologies)
Corporations must consider the
appropriability of technology

2006 Prentice Hall

Global E-Business
1-54

E-business the integration of systems,

processes, organizations, value chains
and entire markets using Internet-based
and related technologies and concepts.
E-commerce - refers directly to the
marketing and sales process via the
Internet

2006 Prentice Hall

Global E-Business
1-55

Convenience in conducting business

worldwide; facilitating communication across
borders contributes to the shift toward
globalization and a global market.
An electronic meeting and trading place,
which adds efficiency in conducting business
sales.
A corporate Intranet service, merging internal
and external information for enterprises
worldwide.
Power to consumers as they gain access to
limitless options and price differentials.
A link and efficiency in distribution.
2006 Prentice Hall

Looking Ahead
1-56

Chapter 2 Social Responsibility and

Ethics

The Social Responsibility of MNCs

Ethics in Global Management
Managing Interdependence

2006 Prentice Hall

Global Management
1-57

The process of developing strategies,

designing and operating systems, and
working with people around the world
to ensure sustained competitive
advantage

Retur

2006 Prentice Hall

European Union
1-58

Comprised of 25 nations
400 million people
Elimination of tariffs has not eliminated
national pride
Global Managers face two major tasks

Strategic how to deal with the EU as an nonEuropean company

Cultural How to deal with multiple sets of
national cultures, traditions and customs

Retur

2006 Prentice Hall

Asia
1-59

Japan and the Four Tigers - Singapore,

Hong Kong, Taiwan, and South Korea,

Each has an abundance of natural

resources and labor

China

A new east Asian economy is emerging,

focused on greatly increased trade within
the region and based on China rather than
Japan.

Return

2006 Prentice Hall

North America
1-60

The goal of NAFTA was to bring the US,

Canada, and Mexico together to create
more jobs, better working conditions and
a cleaner environment
421 Million Consumers
Has been very beneficial to Mexico

Return

2006 Prentice Hall

Adaptation
1-61

Equity sharing includes the initiation of joint ventures with

nationals (individuals or those in firms, labor unions, or
government) to reduce political risks.
Participative management requires that the firm actively
involve nationals, including those in labor organizations or
government, in the management of the subsidiary.
Localization of the operation includes the modification
of the subsidiarys name, management style, and so forth,
to suit local tastes. Localization seeks to transform the
subsidiary from a foreign firm to a national firm.
Development assistance includes the firms active
involvement in infrastructure development (foreignexchange generation, local sourcing of materials or parts,
management training, technology transfer, securing
external debt, and so forth)

Return

2006 Prentice Hall

Dependency
1-62

Input control means that the firm maintains

control over key inputs, such as raw materials,
components, technology, and know-how.
Market control requires that the firm keep
control of the means of distribution
Position control involves keeping certain
key subsidiary management positions in the
hands of expatriate or home-office managers.
Staged contribution strategies mean that
the firm plans to increase, in each successive
year, the subsidiarys contributions to the host
nation

Return

2006 Prentice Hall

Hedging
1-63

Political risk insurance is offered by most

industrialized countries. Insurance minimizes losses
arising from specific riskssuch as the inability to
repatriate profits, expropriation, nationalization, or
confiscation and from damage as a result of war,
terrorism, and so forth.

The Foreign Credit Insurance Association (FCIA) also covers

political risks caused by war, revolution, currency
inconvertibility, and the cancellation of import or export
licenses.

Local debt financing (money borrowed in the host

country), where available, helps a firm hedge against
being forced out of operation without adequate
compensation. In such instances, the firm withholds
debt repayment in lieu of sufficient compensation for
its business losses.

Retu

2006 Prentice Hall