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Business Environment Concept Of Business Environment: The concept of business environment refers to the sum total of individuals, institutions and other forces that surround and affect a business environment. Business environment is the aggregate of all conditions, events and influences that surround and affect the business organisation. Main Features Of Business Environment: Totality of external forces:- Business Environment is aggregative in nature because it is the sum total of all factors and external to a business enterprise. General and specific forces:- Business environment includes both general and specific forces. General forces such as economic, social, political, legal and technological conditions indirectly influence all business enterprises. But specific forces such as investors, customers, competitors and suppliers influence individual enterprise directly. Interrelatedness:- Different elements of business environment are closely interrelated. For example, growing awareness for health care has led to increase in the demand for healthy foods and health resorts. New health products and services, in turn, are changing lifestyles of people. Complexity:- Business environment is complex because it consists of several interrelated elements which keep on changing. For example, it is difficult to know the impact of economic, social, political, technological, and other forces on changes in demand for a product or service. 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 consumers are all examples of environmental changes. 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. Relativity:- Business environment is a relative concept as it differs from country to country and even from region to region. For example, demand for sarees is quite high in India, but almost non-existent in Japan. Similarly, political conditions in India differ from those in Iraq. Multidimensional:- Business environment has several dimensions such as micro and macro. Both of these in turn have many aspects. Mutual Dependence:- Different components of business environment are interdependent. For example, economic forces affect non-economic forces. Diversity:- Business environment is multifaceted in nature. Non Controllable:- The factors in forces that constitute a business environment are largely beyond the control of a single business organisation. Benefits of understanding the business Environment: A business firm can obtain this knowledge through ENVIRONMENTAL SCANNING. Environmental scanning is the process by which organisations monitor their relevant environment to identify opportunities and threats affecting their business. First Mover Advantage:- Awareness of environment helps an enterprise to take advantage of early opportunities instead of losing them to competitors. For example, Maruti Udy became the leader in small car market because it was the first to recognise the need for a small car on account of rising petroleum prices and a large meal class in India. Early Warning Signal:- Environmental awareness makes a firm aware of the impending threat of crisis so that the firm can take timely actions to minimise the adverse effects If any. Customer Focus:- Environmental understanding makes the management sensitive to the changing needs and expectations of consumers. For example, Hindustan Lever and several other FMCG companies launched small sachets of shampoo and other products realising the wishes of customers this helped the firms to increase sales. Strategic Formulation:- Environmental monitoring provides relevant information about the business.Such information serves as the basis for planning and policy making. For example, ITC realised that there is a vast scope for growth in the travel and tourism industry in India and the government scheme to promote this industry because of its employment potential. With the help of this knowledge, ITC planned new hotels both in India and abroad. Coping with change:- Business leaders are expected to cope with rapid changes in the environment. In order to decide the direction and nature of change the leaders need to understand the aspirations of people and other environmental forces through environmental scanning. For example contemporary environment requires prompt decision making and power to people.Therefore business leaders are increasingly delegating authority to empower the staff and two aluminate procedural delays. Public Image:- A business firm can improve its image by showing that it is sensitive to its environment and responsive to the aspirations of public.Leading firms like Reliance Industries, ICICI bank and others have built good image by being sensitive and responsive to environmental forces. Environment and standing enables business firms to be responsive to their environment. Continuous Learning:- Environmental analysis serves as broad based and ongoing education for business executives. It keeps them in touch with the changing scenario so that they are never caught unaware.With the help of environmental learning managers can react in an appropriate manner thereby increase the success of their organisation. MICRO ENVIRONMENT:1) Internal Factors 2) External Factors Internal Factors: Internal environment refers to all the factors existing within the business firm. The internal factors are considered controllable because the enterprise has control over these factors. A strength is an inherent capability of an enterprise which can be used to gain strategic advantage over its competitors. On the other hand, weakness means an inherent limitation or constraint of an enterprise which creates a strategic disadvantage. Main Internal factors:1. Corporate Culture:- The values, beliefs and attitudes of the founders and top management of the company exercise a strong influence on what the company stands for, how it does things and what it considers important. 2. Mission and Objectives:- The business philosophy and purpose of a company guide its priorities, business strategies, product, market scope, and development process. 3. Top Management Structure:- The composition of the board of directors, the degree of professional professionalisation of management and the organisational structure of a company have important bearing on its business decisions. Companies having highly qualified and responsible board members out perform those lacking such board of directors. 4. Power Structure:- The internal power relationship between the board of directors and the chief executive is an important factor. The extent to which 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, place a significant role in raising finance, forming alliances, choosing dealers and suppliers, launching new products, entering foreign markets, etc. 6. Human and Other Resources:- The competence, morale, and motivation of employees play a vital role in the success of the firm. External Factors: The external factors or forces referred to those individuals and groups or agencies with which a particular business organisation comes into direct and frequent contact in the course of its functioning. They exist and operate in the organisation's immediate operating environment. The micro forces may not influence all the firms in a particular industry in the same manner. Main External Factors:1. Customers:- The people who buy a firm s product and services are its customers. A business exists to create and satisfy customers. A firm may have different types of customers like individuals, households, government departments, commercial establishments, etc. 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 buying for discretionary income. 3. Suppliers:- Suppliers referred to the people and groups who supply raw materials and components to the company. Reliable sources of supply and enable the company to carry on uninterrupted operations and to minimise inventory carrying costs. 4. Marketing Intermediaries (Middlemen):- several marketing intermediaries help a company in promoting selling and distributing its product to consumers. Middlemen like agents, wholesalers, and retailers, serve as a link between the company and its customers. Transportation firms and warehouses assist in the physical distribution of products, advertising agencies, marketing, research agencies, and insurance companies are types of marketing intermediaries. 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:- Public include all those groups who have an actual or potential interest in the company, or who influence the company s ability to achieve its objectives. Media groups, environmentalists, non-government organisations, and local communities are examples of publics. MACRO ENVIRONMENT:1. Economic Environment 2. Social environment 3. Technological environment 4. Political environment 5. Legal environment Economic Environment: Economic environment consists of the factors and forces concerning means of production and distribution of wealth. Main Components Of Economic Environment:1. Organisation and development of the capital market 2. Economic policies, industrial policy, monetary policy, fiscal policy, and trade policy 3. Stage and pace of economic growth in the country 4. Industrial infrastructure, transportation, communication, power, etc 5. Market conditions, degree of competition Social Environment: The social environment consists of all the social and cultural forces within which business forms operate. Main Components Of Social Environment:1. Demographic trend - size and distribution of population, age, compositions, male, female ratio, rural urban mobility, income, distribution, life expectancy, etc. 2. Social attitudes, customs, traditions, rituals, culture, lifestyles, etc 3. Family structure and values 4. Social concerns regarding pollution, corruption, status of women and minorities, role of media Social and cultural forces exercise a significant influence on business. Population and income levels affect pattern of demand. Growing awareness about health has led to greater demand for nutritious foods, exercise equipment, and slimming centres.DOINKIS (Double Income No Kids) has emerged as an influential customer group in Metropolitan cities. Technological Environment: Technological environment refers to the state of science and technology in the country and related aspects, such as the rate of technology change. Technological environment depends upon several factors such as spirit of invention and innovation among people, facilities for research and development, incentives and concessions for development and application of new technology, legal protection for intellectual property rights, access to foreign technology, etc. Technological environment exercises, a significant influence on industry and commerce Advancement in technology helps to improve productivity and quality. Political Environment: The political environment consists of the forces concerning management of public affairs and their impact on business. Main Components Of Political Environment:1. Constitutional framework 2. The political structure- centre state relations 3. Political philosophy, and stability of the government 4. Foreign policy and defence policy of the country 5. Relations of the country with other countries India is a democratic nation wherein the government plays an active role in business affairs. Political changes exercise a significant influence on business. For example, Coca-Cola and IBM were forced to leave India due to very strict policy of the government during 1977 to 1980. Legal (Regulatory) Environment: Legal environment refers to the framework within which the business is free to operate. Main Components Of Legal Environment:1. Rights and duties of citizens as specified in the constitution 2. Laws concerning promotion, operation, and expansion of business 3. Flexibility and adaptability of laws 4. Judicial system of the country and judicial decisions In recent years, substantive modification have taken place in various laws and regulations governing business in India. Removal of control over foreign exchange and liberalisation of foreign direct investment have led to the entry of several multinational corporations in the country. The regulation of capital markets has created a surge in primary and secondary capital markets. Now companies in foreign countries can directly issue shares to Indian investors. SWOT ANALYSIS:Strength (S) :- A strength is an inherent capability of the company, which it can use to gain strategic advantage over its competitors. Weakness (W):- A weakness is an inherent limitation or constraint of the company which creates strategic disadvantage for it. Opportunities (O):- an opportunity is a favourable condition in the companies, external environment, which enables it to strengthen its position. Threat (T) :- a threat is an unfavourable condition in the companies, external environment, which causes a damage or risk to its position. SWOT analysis is helpful in the formulation of an effective strategy that can capitalise around the opportunities and neutralise the threats faced by an organisation. SWOT analysis is a systematic and logical approach to understand the internal and external environment of a business organisation.
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