Business Environment consists of all those

factors that have a bearing on the business CA

Francis

 The term business environment of a company is

defined as a pattern of all external influences that effect its life and development.
The survival of a business firm depends on its

innate strength resources at its command and its

adaptability to the environment and the extent to which the environment is favorable to development of the firm

 The survival and success of a firm, thus, depend

on two major factors, viz,- the internal factors & the external factors.
Business Environment relates to External Factors

 A SWOT analysis i.e analysis of strengths and

weaknesses of the organisation and opportunities and threats in the environment.

The internal environment has two components: Strengths and Weaknesses of the organisation.

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, organisational and functional means, such as

marketing mix, to suit the environment.

 The external environment has two components:

Opportunities and Threats to business.

External factors such as economic factors, socio-

cultural factors, govt and legal factors,

demographic factors, geo-physical factors etc are uncontrollable factors.

Business Environment at 2 levels:

Micro/task/operating environment Macro/general/remote environment

 Micro Environment: Suppliers Customers Competitors Marketing intermediaries Financiers Publics

Customers Those people & organizations in the environment who acquire goods or services from the business are

customers.
As recipients of the business output, customers are important because they determine the business s

Types of Customers
Industrial Customers Institutional Customer Foreign Customer Retail Customer

Multiple Customer Globalization Customer Segmentation

Competitors
Other firms in the same industry or type of business that provide goods & services to the same set of

customers.
In todays environment most competitors are cooperating to achieve common goals.

Suppliers
The people & organizations who provide the raw

material the business uses to produce its output.

The relationship among them must of cooperative

in nature in order to save money, maintaining quality, and speeding products to market.
Reliability

Multiple Supplier

Market Intermediates
Types of Market Intermediates
Middlemen Marketing Agencies Financial Institution Physical Intermediates

PUBLICS
Media Publics Local Publics Citizen action publics NGOs

Significance of Business Environment: There is a mutual interdependence between business and its environment. A business enterprises is an open system. It continously interacts with its environment. Business takes inputs raw materials, capital, labour, energy etc. from its environment, and transform them into

goods and services and then send them back to

the environment.

 Business and its external environment interact in the

following ways. . Exchange of information . Exchange of resources. . Exchange of influence and power.
For incorporating dynamic behaviour of environment Complete knowledge of internal environment To understand international events, pressures& impact Economic policies of the govt.

 Economic policies of the govt.

To face business problems &challenges

Vigilant regarding dangers

Administrative system Optimum utilization of resources Market conditions Scientific & industrial advancement

Development & success of business

Macro Dimensions of Business Environment:

The main macro dimensions elements of business

environment are as follows: Economic environment

Political and regulatory environment Social and cultural environment Demographic environment Technical environment National environment Global environment

Economic Environment: The economic environment comprises of the factors and forces concerned with means of production and distribution of wealth. It refers to Economic system: the countrys economic model (socialist, capitalist, mixed) Economic policies: Budgets, 5-Year Plans, industrial laws and policies, statutory regulations, various Acts and Legislations, export-import restrictions, wage and price controls, public distribution system, rural economic upliftment programs etc. Economic growth: Economic performance and growth of domestic industry is heavily dependent on the growth of the economy as a whole. Boom encourages business activity while recession retards it. Organisation of capital and money markets Economic indicators: Interest rates, Currency exchange rates,
income level ,price level

 Social Environment: This environment includes

social factors such as attitudes of people ,social customs and traditions ,education level, size of population ,trade unions, occupational structure etc.
Political Environment: Political environment

refers to the country's political system, type of government, government policies towards business ,government ,centre state relations ,public opinion, law and order etc.

 Legal/ Regulatory environment:

Legal environment of business includes all the

laws, legal system and judiciary system of the

country. A business has to work within framework of country's laws and regulations.

The 3 pillars of the Government are:

Legislature: enacts legislation i.e. creates laws by means of statutes and Acts Executive: entrusted with implementing these statutes Judiciary: adjudicates on issues arising from non-compliance of these statutes

All business activity are legally and morally bound to conform to it. The political and legal environment exerts its influence on business through:
Legal obligations which determine business decisions and actions Political and ideological stand of the nation have a bearing on the business Internal strife by aggrieved sections of society that hamper economic activity and development Political philosophies that stabilize or disrupt the economic progress Reaction times of the 3 pillars of democracy in responding to the issues that cripple progress Foreign policy initiatives that strengthen the nations economy

Socio-Cultural Environment
Social and Cultural environment refers to the

influence exercised by certain social factors which are beyond the companys gate. Such factors include, among others, attitude of people to work,

attitude to wealth, family, marriage, religion,

education, business. ethics and social responsibility of

Technology:
Includes scientific and technological

advancements in a specific industry as well as in

society at large. E.g. Computer industry, etc.
Technological advances can change the rule of the

game; thus every business must be ready to respond.

Natural Environment
Climatic & weather condition. Availability of Natural resources. Topographical factors: Physical features of place. Pollution Control

Demographic Environment
Age Composition
Sex Composition Education Level Family size & structure Urban-rural population

International Business
When business activities are performed on an

international level, these can be termed as international business.

Basic functions, processes and techniques of

international business are essentially the same as

those involved in domestic business.
What is different is the environment within which

these functions are performed and processes are

carried out.

 International Business environments are

unfamiliar and different from the domestic environment

These variations may need adaptation for

business success.

International Business Environment

In the context of a business firm, environment can be defined as various external actors and forces that surround the firm and influence its decisions and operations.

The two major characteristics of the environment as pointed out by this definition are:
these actors and forces are external to the firm these are essentially uncontrollable. The firm

can do little to change them