Business Environment

DEFINITIONS
• Business environment is the aggregate of all
conditions events and influences that
surround and effect the business organization.

• Business environment is the composition of

those forces that affect the performance of
the organization but over those forces the
organization has a little control.
 FEATURES
1. Totality of External forces :Business environment is the aggregative
in nature because it is the sum total of all factors and is external to
a business

2. General and Specific forces :Business environment includes both

general and specific forces. General forces such as economic , social
, political ,legal conditions which indirectly influence all business
enterprise .Specific forces such as investors ,customers ,competitors
influence individual enterprise directly.

3. Interrelatedness : Different elements of a business environment are

closely interrelated

4. Complexity :Business environment is complex because it consists of

several interrelated elements which keep on changing .
5) Dynamic : Business environment is not static ,rather it keeps on changing. Entry of
new competitors in the market ,development of new technology ,shifts in the
preferences of the consumers are examples of environmental changes .

6) Uncertainty :Business environment is largely uncertain because it is very difficult to

predict future events particularly changes in technology and fashion which occur
fast and frequently .

7) Relativity: Business environment is a relative concept as it differs from country to

country and even from region to region.

8) Multidimensional : Business environment has several dimensions such as micro and

macro . Both of these in turn have many aspects .

9) Mutual Dependence :Different components of business environment are

interdependent .

10) Diversity :Business environment is multifaceted or diverse in nature .

11) Non controllable :The factors and forces that constitute business environment are
largely beyond the control of a single business organization .
 Micro Environment
Micro environment refers to those internal and external factors which
exercise a direct influence on the working and performance of an
individual business organization. Micro environment is also known as
direct section environment or Task Environment. Micro environment may
be classified into two broad categories:
• Internal factors
• External factors

MICRO
ENVIRONMENT

INTERNAL EXTERNAL
FACTORS FACTORS
 Internal Factors
Internal environment refers to all the factors existing
within a business firm. The internal factors are
considered controllable because the enterprise has
control, over these factors. However an enterprise may
not sometimes have complete control over all the
internal factors. Internal environment imparts strengths
or causes weaknesses.
Internal Factors which influence business
organisations
1.Corporate culture: The values, beliefs and attitudes of the founders of top
management exercise a strong influence on what the company stands for,
how it does things and what it considers important. When the value
system is shared by all the members the organization is likely to be more
successful.
2.Mission and objectives: The business philosophy and purpose of a company
guides it's priorities, business strategies, product market scope and
development process.
3. Top Management Structure: The composition of the board of directors,
the degree of professionalism of management and the organizational
structure of a company have important bearing on its business decisions.
The board of directors sets the direction and monitors the performance of
the company.
4. Power Structure: The internal power relationship between the board of directors and
the chief executive is an important factor. The extent to which top management enjoys the
support of shareholders and employees at different levels also has an important bearing
on decision-making and working of the company.

5. Company Image and Brand Equity: the image and brand equity of the company play a
significant role in raising finance, forming alliances, launching new products, etc.

6. Human and Other Resources: The competence, morale and motivation of employees
play a vital role in the success of the firm. Some companies face great difficulty in carrying
out such programs due to strong resistance by employees and their unions.
 External Factors
The external factors or forces refer to those individuals and
groups or agencies with which a particular business
organization comes into direct and frequent contact in the
course of its functioning. These individuals and groups are
also known as stakeholders because they have a stake in the
working and performance of the particular business
organization. They exist and operate in the organization’s
immediate operating environment.
 External Factors which influence
business organisations
1. Customers: The people who buy a firm’s products and service are its
customers. A business exists to create and satisfy customers. A firm may
have different types of customers like individuals, households, etc. A
company must understand and meet the needs and expectations of its
customers.
2. Competitors : A company may have both direct and indirect competitors.
Direct competitors are the other firms which offer the same or similar
products and services. Indirect competition comes from firms vying for
discretionary income.
3. Suppliers: Suppliers refer to the people and groups who supply raw
materials and components to the company. Reliable sources of supply
enable the company to carry on uninterrupted operations and to
minimize inventory carrying costs.
4. Marketing Intermediaries(Middlemen): Several marketing intermediaries help a
company in promoting, selling and distributing its products to consumers. Middlemen
like agents , wholesalers and retailers serve as a link between the company and its
customers.

5. Financiers: The shareholders, financial institutions, debenture holders and banks

provide finance to a company. Financial capacity, policies and attitudes of financiers are
important factors for the company.

6. Publics: Publics include all those groups who have an actual or potential interest in
the company or influence the company’s ability to achieve its objectives. Media groups,
environmentalists, NGOs and local community are examples of publics. These publics
can have both positive and negative impact on a business firm.
 Macro Environment
Macro environment refers to the general environment or
remote environment within which a business firm and forces
in its micro environment operate. Therefore, macro
environment is also known as Indirect Action Environment.
Forces in the macro environment, however, create
opportunities for and pose threats to the company. The macro
environment forces are less controllable than the micro
forces.
Political forces in the Macro Environment

Every business is limited by the political environment. This involves laws, government
agencies and pressure groups. These influence and restrict organisations and individuals in
a society. Therefore, marketing decisions are strongly influenced and affected by
developments in the political environment.
Before entering a new market in a foreign country, the company should know everything
about the legal and political environment. How will the legislation affect the business?
What rules does it need to obey? What laws may limit the company’s ability to be
successful? For example, laws covering issues such as environmental protection, product
safety regulations, competition, pricing etc. might require the firm to adapt certain aspects
and strategies to the new market.
Economic forces in the Macro Environment
The Economic forces relate to factors that affect consumer purchasing power and
spending patterns. For instance, a company should never start exporting to a country
before having examined how much people will be able to spend. Important criteria are:
GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment,
Inflation, Disposable personal income, and Spending patterns.

Socio-Cultural forces in the Macro Environment

The Socio-Cultural forces link to factors that affect society’s basic values, preferences and
behavior. The basis for these factors is formed by the fact that people are part of a
society and cultural group that shape their beliefs and values. Many cultural blunders
occur due to the failure of businesses in understanding foreign cultures. For instance,
symbols may carry a negative meaning in another culture.
Technological forces in the Macro Environment

Technological forces form a crucial influence in the Macro Environment. They relate
to factors that create new technologies and thereby create new product and market
opportunities.
A technological force everybody can think of nowadays is the development of
wireless communication techniques, smartphones, tablets and so further. This may
mean the emerge of opportunities for a business, but watch out: every new
technology replaces an older one. Thus, marketers must watch the technological
environment closely and adapt in order to keep up. Otherwise, the products will
soon be outdated, and the company will miss new product and market
opportunities.

Legal forces in the Macro Environment

The legal environment refers to the rules, laws, regulations, and judgments etc. that
affect the functioning of a business. And this will also include the taxation laws and
the Budget for the given year. So stable legal and political government is really
important if the business and the economy as a whole has to succeed.
 SWOT ANALYSIS
SWOT analysis is a strategic technique used to help a person or
organization identify strengths, weaknesses, opportunities, and
threats related to business competition or project planning.
It is intended to specify the objectives of the business venture or
project and identify the internal and external factors that are
favorable and unfavorable to achieving those objectives. Users of
a SWOT analysis often ask and answer questions to generate
meaningful information for each category to make the tool
useful and identify their competitive advantage.
Strengths and weakness are frequently internally-related, while opportunities
and threats commonly focus on the external environment. The name is an
acronym for the four parameters the technique examines:
Strengths: characteristics of the business or project that give it an advantage over
others.
Weaknesses: characteristics of the business that place the business or project at
a disadvantage relative to others.
Opportunities: elements in the environment that the business or project could
exploit to its advantage.
Threats: elements in the environment that could cause trouble for the business
or project.
Strengths in the SWOT of Coca Cola
• Brand Equity – Interbrand in 2011 awarded Coca cola with the highest brand equity award. Coca
cola with its vast global presence and unique brand identity is definitely one of the costliest brands
with the highest brand equity.

• Company valuation – One of the most valuable companies in the world, Coca cola is valued
around 79.2 billion dollars. This valuation includes the brand value, the numerous factories and
assets spread out across the world and the complete operation cost and profit of Coca cola.

• Largest market share – There are only 2 Big competitors in the beverage segment – Pepsi and Coca
cola. Out of these 2, coca cola is the clear winner and hence has the largest market share. Amongst
all beverages, Coke, Thums up, Sprite, Diet Coke, Fanta , Limca and Maaza are the growth drivers
for Coca Cola.
• Fantastic marketing strategies – Coca cola unlike Pepsi always tries to win
peoples heart. Where Pepsi’s target is continuously changing, and is targeted
towards youngsters, Coca cola targets people of all ages. The targeting is also
done by celebrities who are well liked – for example – Amitabh Bacchan, Sachin
tendulkar, Aishwarya Rai, etc

• Customer Loyalty – With such strong products, it is natural that Coca cola has a
lot of customer loyalty . The products mentioned above like Coca cola and Fanta
have a huge fan following. People will prefer these soft drinks over others.
Because of the good taste of Coca cola, finding substitutes becomes difficult for
the customer.

• Distribution network – Coca cola has the largest distribution network because of
the demand in the market for its products. On the other hand, due to this
successful distribution network, Coca cola has been able to command such a high
market presence

• Vast global presence – Coca cola is present in 200 countries across the world.
Chances are, any country that you go to, you will find coca cola present in
that market . This vast global presence of coca cola has also contributed to the
building of the mammoth brand name
 Weaknesses in the SWOT of coca cola

• Competition with Pepsi – Pepsi is a thorn in the flesh for Coca cola. Coca cola
would have been the clear market leader had it not been for Pepsi. The
competition in these two brands is immense and we don’t think Pepsi will give up
so easily.

• .
• Water management – Coca cola has faced flak in the past due to its water
management issues. Several groups have raised lawsuits in the name of Coca
cola because of their vast consumption of water even in water scarce regions.
At the same time, people have also blamed Coca cola for mixing pesticides in
the water to clear contaminants. Thus water management needs to be better
for Coca cola.

• Product Diversification is low – Where Pepsi has made a smart move and
diversified into the snacks segment with products like Lays and Kurkure, Coca
cola is missing from that segment. The segment is also a good revenue driver
for Pepsi and had Coca cola been present in this segment, these products
would have been an additional revenue driver for the company.

• Absence in health beverages – If you watch the news, you would know that
obesity is a major problem affecting people nowadays. The
business environment is changing and people are taking measures to ensure
that they are not obese. Carbonated beverages are one of the major reasons
for fat intake and Coca cola is the largest manufacturer of Carbonated
beverages. The inference is that the consumption of beverages in developed
countries might go down as people will prefer a healthy alternative.
Opportunities in the SWOT of coca cola
• Diversification – Diversification in the health and food business will
improve the offerings of Coca cola to their customers. This will also ensure
that they get better revenue from existing customers by cross selling their
products. The supply chain which is distributing their beverages can also
distribute these snacks thereby sharing the load of Supply chain costs.
• Developing nations – Although developed nations have a high presence of
Coca cola, these countries are slowly moving towards healthy beverages.
However developing countries are still being introduced to the delight of
carbonated drinks and soft drinks. Countries like India which are
developing and have a hot summer, find the consumption of cold drinks
almost doubled during summers. Thus the higher consumption in
developing environment’s can be a good opportunity to capitalize for
Coca cola.
• Packaged drinking water – With hygiene becoming a major factor in the
consumption of water, Packaged drinking water has found its way into
peoples mind. Coca cola has a presence in the packed drinking water
segment though Kinley. Although Kinleys expansion is slow as of now,
Kinley has a huge potential of expansion . Thus Coca cola as a company
should focus on the expansion of Kinley as a brand and take it up
to Bisleri ‘s level of trust.
• Supply chain improvement – Supply chain can be a major cost sink hole with the
transportation costs always rising. Coca cola’s complete business is based on
transportation and distribution. There will always be possible improvements in this
area. Thus Coca cola should keep strict watch on its Supply chain and keep improving
to bring the cost down.

• Market the lesser selling products – In the product portfolio of Coca cola, there are
several products which have not found acceptance in the market. Coca Cola needs to
concentrate on the marketing of these products as well. It is understood that Coca
cola has made several expenses to launch these products. Thus, the marketing and
subsequent rise of sale of these products will help revenue of Coca cola.
Threats in the SWOT of coca cola

Raw material sourcing – Water is the only threat to Coca cola. The weakness of Coca cola
was the suspected use of pesticides or vast consumption of water. However, the threat
here is that water scarcity is on the rise. With the climate changing, and regions of various
countries facing scarcity of water, sooner or later someone might raise fingers on
beverage companies. Thus, Water sourcing is an axe which can fall anytime on the head
of Coca cola. If water is limited or rationed, Coca cola can experience a major downfall in
their revenue and capacity of distribution. The same can affect its arch rival Pepsi as well.

Indirect competitors – Coffee chains like Starbucks, Café coffee day, Costa Coffee are on
the rise. These chains offer a healthy competition to Coca colas carbonated drinks. They
might not be a big competition for Coke, but they do give a dent to its beverage market.
Similarly, health drinks like Real and Tropicana as well as energy drinks like Red bull
and Gatorade are stealing away the market share indirectly.
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