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BUSINESS ENVIRONMENT

SUBJECT CODE:- KMB201

 WHAT IS BUSINESS???

Business may be understood as the organized efforts

of enterprises to supply consumers with goods and
services for a profit.
 Scope of Business

 Business included all activities connected with

production, trade, banking, insurance, finance,
agency, advertising, packaging and numerous
other related activities. Businesses include all
efforts to comply with legal restrictions and
government requirements and discharging
obligations to consumers, employees, owners
and to other interest groups which have stakes
in business directly or indirectly.
CONTEMPORARY BUSINESS GOALS

 Profit (Bottom-line)
 Growth

 Market Leadership

 Customer satisfaction

 Employee satisfaction

 Quality Products & Services

 Service to Society
CHARACTERISTICS OF BUSINESS

Change

Government
Large Size
Control

Characteristics
of
Competition Business
Diversification

Information Globalization

Technology
BUSINESS ENVIRONMENT

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 The term Business Environment is
composed of two words, Business and
Environment.
 The word Business in its economic
sense means human activities like
production, extraction or purchase or
sales of goods that are performed
for earning profits.
 Environment‟ refers to the aspects
of surroundings.
NATURE OF MODERN BUSINESS

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 Large size

 Oligopolistic character

 Diversification

 Global reach of modern business

 Technological orientation

 Change

 Government control
 INTRODUCTION TO BUSINESS
ENVIRONMENT

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 Business environment consist of all
those factors that have a bearing on
the business.

 The term 'business environment

implies those external forces, factors
and institutions that are beyond the
control of individual business
organizations and their management
and affect the business enterprise.
 Theseforces are customer,
creditors, competitors,
government, socio-cultural

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organizations, political parties
national and international
organizations etc. some of those
forces affect the business directly
which some others have indirect
effect on the business.
WHY STUDY BUSINESS
ENVIRONMENT??
The success of every business depends upon adapting

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itself to the environment within which it functions.
For Example:
1. When there is a change in government policies, the
business has to make the necessary changes to adapt
itself to the new policies.
2. Change in technology may render the existing
products obsolete, introduction of colour T.V
television replaced the black and white T.V or
introduction of computers replaced type writers.
3. Introduction of Jeans affected traditional wear. Etc.
4. All these aspects are external factors that are beyond
the control of business. Hence it is very important to
have a clear understanding of concepts of business
environment in order for business units to adapt
themselves to the BE.
 IMPORTANCE OF BUSINESS
ENVIRONMENT

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 Firm to identify Opportunities and getting the first mover advantage. E.g. TATA
NANO for small cars.

 Firms to identify threats and early warning signals. E.g.. Multinational entering
Indian market.

 Continuous learning: Environmental analysis makes the tasks of managers easier

in dealing with business challenges.

 Image Building: By showing their sensitivity towards the environment. E.g. CFC
Free Refrigerators.

 Meeting competition: It helps the firms to analyse the competitors strategies and
formulate their own strategies accordingly.

 Identifying firms strengths and weaknesses.

 FEATURES OF BUSINESS
ENVIRONMENT

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a) Business environment is the sum of all factors external
to the business firm and that greatly influence their
functioning.
b) It covers factors and forces like customers, competitors,
suppliers, government and the social, cultural,
political, technological and legal conditions.
c) The business environment is dynamic in nature and it
keeps on changing.
d) The changes of business environment are
unpredictable. It is very difficult to predict the exact
nature of future happenings and the changes in
economic and social environment.
e) Business environment differs from place to place,
country to country. Like political conditions in India
will differ from those in Pakistan.
TYPES OF ENVIRONMENT

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On the basis of the extent of
intimacy with the firm , the
environmental factors may be
classified into different types-
internal and external.
INTERNAL ENVIRONMENT

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The internal environment is the
environment that has a direct impact on
the business. Here there are some
internal factors which are generally
controllable because the company has
control over these factors. It can alter or
modify such factors as its personnel,
physical facilities, and organization and
functional means, like marketing, to suit
the environment.
A) VALUE SYSTEM

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The value system of the founders
and those at the helm of affairs has
important bearing on the choice of
business, the mission and the
objectives of the organization,
business policies and practices.
EXAMPLE

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 Persons holding top positions in certain modern enterprises
have some values which influence their policies, practices and
overall internal environment.

 Ex: JRD TATA –Value system – responsibilities towards his

employees did some some commendable work in the field of
labor welfare.

 Attitude of TATA’s to employ disabled persons out of their

total workforce of more than sixty thousand.

 The company value system need not be always positive. It can

be totally negative.

 Cases of pharmaceutical companies selling banned drugs

world over.

 Rational firms attempt maximize long-run profit.

B) MISSION,VISION AND
OBJECTIVES

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 Vision
means the ability to think
about the future with imagination
and wisdom. Vision is an important
factor in achieving the objectives of
the organization. The mission is the
medium through which the
objectives are achieved.
C) MANAGEMENT STRUCTURE AND
NATURE

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 The structure of the organization also
influences the business decisions. The
organizational structure like the
composition of board of directors ,
influences the decisions of business as
they are internal factors . The structure
and style of the organization may delay a
decision making or some other helps in
making quick decisions.
D) COMPANY IMAGE.

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E) INTERNAL POWER OF RELATIONSHIP

F) HUMAN RESOURCE
EXTERNAL ENVIRONMENT

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It refers to the environment that has an
indirect influence on the business. The
factors are uncontrollable by the
business. There are two types of external
environment:

1. Micro
2. Macro
Micro Environment
The micro environment is also known as the
task environment and operating

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environment because the micro
environmental forces have a direct
bearing on the operations of the firm.
a)Suppliers
An important force in the micro
environment of a company is the
suppliers, i.e., those who supply the inputs
like raw materials and components to the
company.
THE ‘TOYOTA’ CASE
 During 2009 – 2011 , Toyota

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had to recall nearly 10 million
vehicles all around Europe as
the accelerators were not
working properly.
 It was because the supplier had
supplied faulty mechanical
accelerators.
 Due to the faulty accelerators
there were many accidents out
of which nearly 37 were fatal
and ended in death.
 Out of 10 million cars nearly 7
million were Toyota Camry and
Corolla.
 Toyota repaired all these cars
and sent them back to their
owners , but they lost the trust
of the customers.
Customer
The major task of a business is to create
and sustain customers. A business exists

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only because of its customers.
Marketing Intermediaries
The marketing intermediaries include
middlemen such as agents and merchants
that help the company find customers or
close sales with them.
financers
The financers are also important factors
of internal environment.
Public
Public can be said as any group that has
an actual or potential interest in or on an

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organization’s ability to achieve its
interest. Public include media and
citizens.
Ex. Shun products made of Leather, Says
PETA (People for The Ethical Treatment
of Animals.)

Competitors
MACRO ENVIRONMENT

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Macro environment is also known as
General environment and remote
environment. Macro factors are
generally more uncontrollable than
micro environment factors. When
the macro factors become
uncontrollable , the success of
company depends upon its
adaptability to the environment.
Economic Environment
Economic environment refers to the aggregate
of the nature of economic system of the
country, business cycles, the socio-economic

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infrastructure etc.

Social Environment
The social dimension or environment of a
nation determines the value system of
the society which, in turn affects the
functioning of the business. Sociological
factors such as costs structure, customs
and conventions, mobility of labor etc.
have far-reaching impact on the business.
Political Environment
The political environment of a country is
influenced by the political organizations

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such as philosophy of political parties,
ideology of government or party in power,
nature and extent of bureaucracy
influence of primary groups etc.
Legal Environment
Legal environment includes flexibility and
adaptability of law and other legal rules
governing the business. It may include the
exact rulings and decision of the courts.
Technical Environment
The business in a country is greatly
influenced by the technological

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development. The technology adopted by
the industries determines the type and
quality of goods and services to be
produced and the type and quality of
plant and equipment to be used.

Demographic

Natural Environment
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