Business Environment

• The sum total of all External and Internal factors

that affect and influence the operation of a business
is called business environment.
It is a surrounding where the business organization
exists.
Business starts, operate and die in an environment.
Business environment either provide opportunities or
threat.
 Internal Environment
• Internal Environment refers to environment within the
organization.
• It includes internal factors of the business which can be
controlled by business.
• It includes objectives of business, managerial policies,
management and employees of the organistion, labour
management relationship, brand image and corporate image,
working conditions in the organistion, technological and
research and development capabilities etc.
• Internal environment includes 5 M's i.e. men, material,
money, machinery, management available with business.
• These components are usually within the control of business.
 External Environment
• External Environment: Those factors which
are beyond the control of business enterprise
are included in external environment.
It is of two Types:
1. Micro Environment
2. Macro Environment
 Types of
External
Environments

Micro Macro
Environment Environment
 The Micro Environment :
The micro environment of a company consists of
elements that directly affect the company.
There are five factors that affect the micro
environment:
1. SUPPLIERS,
2. CUSTOMERS,
3.MARKETING INTERMEDIARIES,
4.COMPETITORS,
5.PUBLIC & MEDIA
 Micro Environment
Suppliers:
• Suppliers are those who supply raw materials and components of the
company.
• Every business requires the suppliers.
• If our supplier is reliable, our business will run smoothly.
• If our supplier is not reliable, we have to maintain high inventories.
Customers:
• The success of a business organization depends upon the
customers, their needs, tastes etc.
• Now a days the competition is growing so it is very essential to
satisfy the customer.
• For attracting new customers companies conduct consumer
research, provide after sale services etc.
Market Intermediaries:
• They work as a link between business and final consumers.
Types:-(i) Middleman (ii) Marketing Agencies(iii) Financial
Intermediaries.
Competitors:
• Competitors means other business units which are
producing similar products or a very close substitute of our
product.
• Now a days competition has increased.
• No business units enjoys monopoly in the market. So the
business has to satisfy the customer for the success in the
market.
Public : is group that has actual or potential interest in the
business.
So public also affect the business.
Media : also affect the business. It includes all newspaper,
magazines, journals etc.
Media also affects the reputation of the company.
 Macro Environment
• The macro environment consists of general factors
that a business typically has no control over.
• The success of the company depends on its ability
to adapt.
• These factor are uncontrollable
 ECONOMICAL ENVIRONMENT
Economic environment means the economic situation of the country
where the organization perform various organizations activities such
as sale and purchase etc
Rate of interest, inflation rate, change in the income of people,
monetary policy, price level etc. are some economic factors which
could affect business firms
For example:
• If the economy is in recession, people tend to be unemployed or
worried about losing their job, therefore not spending money on
luxury goods.
• In a business sector where both wife & husband work, their acquiring
power will be more.
 TECHNOLOGICAL FACTORS
Technology is about application of tools, methods and
techniques to improve production and processes.
Technology is not constant it keeps on changing.
Technology is life for growth and competitiveness of
Business.
So Business need to keep up-to-date with the latest
technology in order to remain competitive.
For example:
Digital watches in place of traditional watches, booking of
railway tickets on internet etc.
Japanese industries have achieved a great success because
of innovation and rapid technological up gradation.
 NATURAL ENVIRONMENT
• It includes natural resources , weather , climatic
conditions, topographical factors such as soil, sea,
rivers, rainfall etc.
• Every business unit must look for these factors
before choosing the location for their business
 Social Environment:
• Socio- Cultural Environment refers to social and
cultural factors which are beyond the control of
business unit.
• Such factors includes attitude of people to work,
family system, caste system, education, habits,
language, religion etc.
• Religion has considerable effect on business.
• Some religions restrict their followers from doing a
particular type of business.
Example: Jain religion does not allow its followers to
engage in leather industry, wine making etc
• Political Environment:
Changes in political situation also affect business organizations.
Political stability builds confidence among business community
while political instability and bad law & order situation may
bring uncertainty in business activities.
Example: Bangalore and Hyderabad have become the most
popular locations for IT due to supportive political climate.
• Legal Environment:
It constitutes the laws and legislations passed by the
Government, administrative orders, court judgments, decisions
of various commissions and agencies. Businessmen have to act
according to various legislations and their knowledge is very
necessary.
Example: Advertisement of Alcoholic products is prohibited and
it is compulsory to give statutory warning on advertisement of
cigarettes.
 International Environment
• Due to liberalization, globalization, now the Indian
companies are competing with the foreign
companies.
• It has been observed that major international
developments have their impact on domestic
market.
• Recent example is increase in fuel prices in Indian
market because of rise in prices of crude oil at
international level.
• In the same way, because of US recession,
Indian stock market also faced downfall.