Analysis of Business Environment

Business--A person's or organization engaged in regular occupation, profession, or trade of goods, services, or both to consumers. Environment--The sum total of all surroundings of a living organism, including natural forces and other living things, which provide conditions for development and growth as well as of danger and damage. Business Environment--Environment of a business means the external forces influencing the business decisions. External forces includes economic, social, political and technological factors. These factors are outside the control of the business.

Importance of Business Environment

1.firm to identify opportunities and getting the first mover advantage: For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India. 2. firm to identify threats and early warning signals: If an Indian firm finds that a foreign MNCs is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on. 3. Coping with rapid changes: In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action. 3. Improving performance: the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

Dimensions of Business Environment

The following are the key components of general environment of a business. 1. Economic environment- economic environment consists of economic factors that influence the business in a country. These factors include GNP, corporate profits, inflation rate, employment, BOPs, interest rates and consumer income etc. 2. Social environment- It describes the characteristics of the society in which the organization exists. Literacy rate, customs, values, beliefs, lifestyle, demographic features and mobility of population etc. are part o the social environment. 3. Political environment- It comprises political stability and the policies of the govt. Such as personal interest on politicians, influence of party forums etc. 4. Legal environment- This consists of legislation that is passed by the parliament and state legislatures. Ex. Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 1986. 5. Technological environment- It includes the level of technology available in a country. In a competitive business environment technology is the key to development.

Environmental Analysis
Environmental analysis is the study of the organizational environment to pinpoint environmental factors that can significantly influence organizational operations.

Why Environmental Analysis needed?

Environmental analysis will help you understand what is happening both inside and outside your organization and to increase the probability that the organizational strategies

Types of Business Environment

Internal & External business environment Internal business environment: Factors that influence the firm from inside is called internal business environment for example; organization of machinery and equipment, technological capacity, organizational culture, management systems, financial management employee morale.

External Business Environment

-Factors that influence the firm from outside is called external environment for example; Competition (what are they doing?) Customer behavior (needs, wants, and desires) Industry out look (local, national, global) Demographics (the change populations, there density, etc.) Economy (are we peaking, or moving negatively) Political movements and/or interference Social environment Technological changes General environmental changes

Role of political factors in business

These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

Role of economic factors in business

These include interest rates, taxation changes, economic growth, inflation and exchange rates. For example: - higher interest rates may deter investment because it costs more to borrow - a strong currency may make exporting more difficult because it may raise the price in terms of foreign currency - inflation may provoke higher wage demands from employees and raise costs - higher national income growth may boost demand for a firm's products

Role of social factors in business

Changes in social trends can impact on the demand for a firm's products and the availability and willingness of individuals to work. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario.

Role of technological factors in business

Technology plays an important role for any successful organisation. New technologies create new products and new processes. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products. In other words technology must be updated on regular basis or new technology is needed for higher production.