Business and Its Environment

BUSINESS AND ITS
ENVIRONMENT
BUSINESS:
The term business refers to buying
and selling of goods. But in modern
times, business covers a wide and
complex field of industry and
commerce involving complex
activities related to both production
and distribution. All these activities
satisfy the diverse needs of the
society and also help generate profit
of business firms or units.

Thus by the term business we mean
organized efforts of different
enterprises for supplying various
goods and services to the ultimate
consumers for a profit. Business, in
nutshell, includes diverse activities
related to production, marketing,
transport, trade, finance, banking,
insurance, advertising and some other
activities connected with industry and
commerce.
One thing is common, all
these activities are conducted
as well as motivated by profits.
Moreover, all these activities
must be conducted within the
existing legal framework.
Violations of which must be
excluded from business
activity.
In modern times, the purpose of
business goes beyond earning profit. It
is thus an important institution in
society, may be within public or private
sector, which supplies goods and
services, generate job opportunities,
offer better quality of life, contribute the
economic growth of the economy and
can put it in the global map by joining
the international trade. Thus business
has a very important role to play with
every segments of the society.
Business is affected by different
factors which collectively form the
business environment. These
include economic, social, legal,
technological and political factors.
Business environment therefore,
the total forces, which affect the
organization and the business
operations ( Kotler & Armstrong
2004 )
As a reminder, the 4 Key
Success Factors are:
1.Strategic Focus (Leadership,
Management, Planning)
2.People ( Personnel, Staff, Learning,
Development)
3.Operations (Customers, Relations, Sales,
Responsiveness)
4.Finances (Assets, Facilities, Equipment)
ENVIRONMENT:
The term environment includes all
external forces which have an important
bearing of the functioning of the business.
According to Barry M. Richman and Melvyn

Copen, “Environment factors or constraints
tire largely if not totally, external and
beyond the control of individual industrial
enterprises and their managements. These
are essentially the ‘givers’ within which
firms and their managements must operate
in a specific country and they vary, often
greatly from country to country.”
The business environment usually offers
immense opportunities for exploiting
potential market and also poses threats to
the firm itself. On this aspect, William F.
Glueck and Lawrence R. Jauch observed,
“The environment includes factors outside
the firm which can lead to opportunities for
or threats to the firm. Although there are
many factors, the most important of the
sectors are socioeconomic, technological,
supplier, competitors and government.”
Thus this definition shows that
environment includes different factors
like socio-economic, technological,
supplier, competitor and the
government. Besides, there are two
other factors, physical or natural
environment and global environment.
Thus total environment of business is
consisting of six factors, political-
legal, economic, social-cultural,
technological, global and natural.
1. Economic Environment:
Economic environment includes all those forces
which have an economic impact on business.
Accordingly, total economic environment is
consisting of agriculture, industrial production,
infrastructure, planning, basic economic
philosophy, stages of economic development,
trade cycles, national income, per capita income,
savings, money supply, price level and population.
Business and economic environment is closely
related. Business usually collects all its required
inputs from the economic environment available
and also absorbs the output of business units.
2. Political-legal Environment:
It includes the activities of three political
institutions, legislative, executive and judiciary
which usually play useful role in shaping,
directing, developing and controlling business
activities. The legislature takes decision on a
particular course of action, the executive
implements those decisions through government
agencies and the judiciary serves as a watch-dog
for ensuring public interest in all the activities of
legislature and executive. In order to attain a
meaningful business growth a stable and
dynamic politico-legal environment is very
important.
3. Technological Environment:

Technological environment is exercising
considerable influence on business.
Technology implies systematic application
of scientific or other organized knowledge
to practical tasks or activities. Business
makes it possible for the technology to
reach the people in proper format. As the
technology is changing fast thus
businessmen should keep a close look on
those technological changes for its
adaptation in their business activities.
4. Global or International Environment:
Global environment is also playing an

important role in shaping the business
activity. With the liberalization and
globalization of the economy, business
environment of an economy has become
totally different when it has to bear all
shocks and benefits arising out of global
environment.
5. Natural:

Natural environment also
influences business in a diverse
way. Business of modern times is
also dictated by nature. Natural
calamities like floods, droughts,
earthquake etc. affect the business
activities in a worst manner.
6. Socio-Cultural:
Finally, social and cultural environment is also
influencing the business environment indirectly. These
includes people’s attitude to work and wealth, ethical
issues, role of family, marriage, religion and education
and also social responsiveness of business.
Social and cultural environment also influences the
demand for variety of goods and the type of employees
the industry require. Moreover, the obligation of business
to society also depends on the cultural miliew in which
the firm is operating.
Thus business is the result of economic, politico-legal,
technological, socio-cultural, global and natural factors
within which it has to function. There are three features
common to this relationship between business and
environment.
First, there is symbiotic relationship
between business and its
environment and also among the
environmental factors. Second,
these environmental factors are
quite dynamic in nature. Third, a
number of business firms will be in
a position to bring necessary
changes in its environment, which a
particular firm individually may not
do so.
TYPES OF ENVIRONMENT:
1. The combination of internal and external factors that
influence a company's operating situation.
2. Internal Business Environment Internal Business Environment
is the set of elements or forces which affects a organization's
or firm’s behaviour. Examples are like personnel, finance,
marketing, production, operational research and so on.
3. External business environment External Business
environment is a set of political, economic, social and
technological (PEST) forces that are largely outside the
control and influence of a business, and that can potentially
have both a positive and a negative impact on the business.
4. Macro Environment, Micro Environment
5. Micro environment is the environment that an organization
can influence. It may not be able to Correct all flaws in the
microenvironment, but it has a much better control over the
macro environment.
6. Factors Influencing Micro i) Environment Consumers –
needs , purchasing power and behaviour ii) Suppliers iii)
Market intermediaries iv) Competitors
7. Suppliers Supply raw materials and other components

(Inputs) maintains continuous supply for smooth
functioning. • Market intermediaries Middlemen Physical
distribution Firms: (warehouses and transport
firms)Marketing service agencies (Advertising agencies
market research firms, media firms, consulting
firms)Financial intermediaries. • Competitors: i. The Threat
of entry of new firms ii. The Power of Buyers iii. The Power
of Suppliers iv. The Power of Substitutes v. The Intensity of
Rivalry among existing firms
Factors Influencing Micro i) Environment Consumers
– needs , purchasing power and behaviour ii)
Suppliers iii) Market intermediaries iv) Competitors
Suppliers Supply raw materials and other
components (Inputs) maintains continuous supply
for smooth functioning. • Market intermediaries
Middlemen Physical distribution Firms: (warehouses
and transport firms)Marketing service agencies
(Advertising agencies market research firms, media
firms, consulting firms)Financial intermediaries. •
Competitors: i. The Threat of entry of new firms ii.
The Power of Buyers iii. The Power of Suppliers iv.
The Power of Substitutes v. The Intensity of Rivalry
among existing firms
These factors include  SOCIOLOGICAL
FACTORS It concerns with society as a whole; it
covers health, media, education, minorities,
women, organized labour , legal system and
demographics. The biggest challenge to firms is
the society's changing demands.  NATURAL &
ECOLOGICAL FACTORS Use of modern
technology sometimes involves huge social cost
in term of Deterioration of environmental pollution
and ecological balance. So business environment
should also consider about natural resources,
weather & climatic conditions, health hazards etc.
POLITICAL FACTORS Political environment gives shape
to business. Political stability, Government
administration, Philosophy of the political parties are
some of political factor which affects the business
environment.  LEGAL FACTORS Legal Environment has
a permanent and lasting impact in shaping business
.Labour law act, Industrial dispute act, Minimum wages
act, Law of contract, Import & Export control act and tax
law act are few legal factors.  EDUCATIONAL FACTORS
Educational cum cultural environment affects business
activities and managerial skills. These factors include
literacy, attitude toward training and skill required for a
business like specialized, vocational and technical
training
THANK YOU
GOD BLESS!!!

Business and Its Environment

Uploaded by

Copyright:

Available Formats

Business and Its Environment

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business and Its Environment

Uploaded by

Copyright:

Available Formats

What are the different factors that influence business environment?

What are the internal and external factors of business environment?

BUSINESS AND ITS

According to Barry M. Richman and Melvyn

Global environment is also playing an

7. Suppliers Supply raw materials and other components

You might also like