BUSINESS ENVIRONMENTUNIT 1BUSINESS AS A SOCIAL SYSTEMBusiness is an integral part of social system and it is influenced by otherelements of society which, in term, is affected by the business. Today the wholesociety is a business environment.Davis and Blomstorm point out that in taking an ecological view ofbusiness in a systems relationship with society; three ideas are significant inaddition to the systems idea.The three ideas are:1.Values2.Viability3.Public visibility1. VALUES:Business like other social institutions, develops certain belief systems andvalues for which they stand, and there beliefs and values are a source ofinstitutional drive. These values drive from a multitude source, such as the missionof business as a social institution, the nation in which business is located, the typeof industry in which it is active and the nature of employees. These values becomeguides for employees decisions in the interface of business. Second, they becomestrong motivators for people in a business.

2. VIABILITYDavis and Blomstorms define viability as the drive to line and grow, toaccomplish the potential not yet reached, and to achieve all that a living system iscapable of becoming. If a business is to be a viable, vigorous, institution insociety, it must initiate its share of forces in its own environment rather thanmerely adjust to outside forces. Every business needs a drive and spirit all its ownto make it as a positive actor on the social stage rather than reactor or a reflector.3. PUBLIC VISIBILITYThe term public visibility refers to the extent that organizations activitiesare known to person outside the organization. Public visibility is different fromidea of public image. The term public image refers to what people think about anorganizations act, while are known. The importance of public visibility is that itsubjects business activities to public examination, discussion and judgment.These are became business is integral part of social system. It is a socialorgan to help accomplish the social goals.

INTERNAL AND EXTERNAL ENVIRONMENT OF BUSINESS [TYPESOF ENVIRONEMTN]I.INTERNAL ENVIRONMENT FACTORS

1.Value system: The value systems of the founders and those at the helm ofaffairs have important bearing on the choice of business, the mission andobjectives of the organization, business policies and practices. It is a widelyacknowledged fact that the extent to which the value system is shared by all inorganization is an important factor contributing to success.

2.Mission and Objectives: The business domain of the company, priorities,direction of the development, business philosophy business policy etc areguided by the mission and objective of the company.Example: Ranbaxys thrust in to the foreign markets and developments have beendriven by its mission to become a researcher based international pharmaceuticalcompany.

3.MANAGEMENT STRUCTURE AND NATUREThe organizational structure, the composition of board of directors, extentof professionalization of management etc, are important factors influencingbusiness decisions. Some management structures and styles delay decision makingwhile some other facilitate quick decision making.The Board of Directors being the highest decision making body which setsthe direction for the development of the organization and which oversees theperformance of organization, the quality of the Board is a very critical factor forthe development and performance of company.

4.INTERNAL POWER RELATIONFactors like the amount of support the top management enjoys from thedifferent levels of employees, share holders, and Board of Directors haveimportant influence on the decision and their implementation. The relationshipbetween the members of the board and between chief executive and the Board arealso critical factors.

5.HUMAN RESOURCESThe characteristics of the human resources like skill, quality, morale,commitment, attitude etc., could contribute to the strength and weakness of theorganization.

6.COMPANY IMAGE AND BRAND EQUITYThe image of the company matters while raising finance, forming jointventures or other alliances, soliciting marketing intermediaries, entering purchaseon sale contracts, launching new products etc. Brand equity is also relevant inseveral of these cases.

7.OTHER FACTORSA)Research and development determine a companys ability to innovate andcompete.B)Marketing quality of marketing men, brand equity, distribution networkhave direct effect on marketing.C)FINANCE 0 financial policies; financial position and capital structure arealso affecting business performances.D)Physical Assets production capacity, technology, distribution logistics

EXTERNAL ENVIRONMENT FACTORSIt consists of 2 types.1.Micro environment2.Macro environment

I. Micro EnvironmentThe micro environment is also known as the task environment andoperating environment became the micro environment forces have a direct bearingon the operations of the firm.These include the factors like

1. SUPPLIERSAn important force in the micro environment of a company is the suppliers,i.e. those who supply the inputs like raw materials and components to the company. The importance of reliable source of supply is for the smoothfunctioning of business.It is very risky to depend on a single supplier became of skills, lock out orany other production problem with that supplier may seriously affect the company.Hence multisource of supply often helps reduce risks.

2. CUSTOMERSA business exist only became and its customers. A company may havedifferent categories of customers like individuals, households, industries and othercommercial establishment and govt. and other institution.

3. COMPETITORSA firms competitors include not only other firms which market the sameproducts but also all those who compete for the discretionary income of theconsumers.

4. MARKETING INTERMEDIARIESThe immediate environment of the company may consist of number ofmarketing intermediaries which are firms that aid the company in promoting,selling and distributing its goods to final buyers.The marketing intermediaries includes middlemen such as agents andmerchants who help the company find customers or close sales with them.

5. FINANCIERSAnother important micro environmental factor is the financier of thecompany. Besides the financing capabilities, their policies and strategies, attitudes,ability to provide non financial assistance etc are very important.

6. PUBLICSA public is any group that has an actual or potential interest in an impacton an organizations ability to achieve its interests. Media publics, citizen actionpublics and local publics are some examples.

MACRO ENVIRONMENTIt is also called as general environment and remote environment. The macroenvironment is generally uncontrollable than micro environment, the success ofthe company depends on its adaptability to the environment.The important macro environment factors as follows:

I. TECHNOLOGICAL ENVIRONMENTTechnology is one of the important determinants of success of a firm aswell as economic and social development of nation. It includes both hardware andsoftware to solve problems and promote progress.

1. Innovative drive of companyThe term innovation means introduction of new product, the use of newmethod of production. The technical, industrial and commercial steps which leadsto marketing of new products and to commercial use of new technical process andequipment.2. Customers Needs / ExpectationTechnological orientation and R&D effects of a company may also beinfluenced by the customer needs and expectation. In several cases the customerand the supplier have a collaborative relationship to develop the product orsolutions. If the customers are highly demanding, companies would be compelledto be innovative.

3. Demand conditionsThe size of demand influences the choice of the technology . The size ofdemand influences the choice of the technological scale. Fast growing trend ofdemand would encourage development of technology of large scale.

4. Suppliers offeringMany times technological changes are encouraged by the suppliers of acompany, like a capital goods supplier etc.5. Competitive dynamicsCompetition compels the adoption of the best technology and constantendeavor to innovate.6. SubstitutesEmergence of new substitutes or technological improvements or substituteswhich alter technological change.7. Social forcesCertain social forces like pretext against environment pollution or otherecological problems demand for eco-friendly products.8.Research organizationThe technological environment of business is enriched by researchedorganizations which develops new technologies and provide other technical inputs.9.Govt. policyThe govt. contributes to the development to the technology by its owndirect involvement by establishing research organization and funding R & D. Thegovt. may encourage private R & D by various incentives.

II. DEMOGRAPHIC ENVIRONMENTThe importance of demographic factors to business is clear from the factsthat Management is men & Market is people. i.e., Management in Men,Material, Machinery and Money, and market is people in the sense that thedemand depends on the people and their characteristics the number, incomelevels, tastes and preferences, beliefs, attitudes and sentiments.Important demographic bases of market segmentation include thefollowing:1.Agestructure 2.Gender 3.Income distribution 4.Family size 5.Occupation 6.Education 7.Social class 8.Religion 9.Race 10.Nationality Demographic factors such as size of population, growth rate, agecomposition, ethnic, density of population, rural urban distribution, nature offamily have very significant implication for business.

III. ECONOMIC ENVIRONMENTBusiness partners and strategies are influenced by the economiccharacteristics. The economic environment includes the structure and nature of the economy, the stage of development of economy, economic resources, level ofincome, global economic linkages, economic policies etc.1. Nature of the EconomyThe general level of development of the economy has lot of implication forbusiness it has significant bearing on the nature and size demand, govt. policiesaffecting business. The widely used method of classification of the economies ison the basis of per capita income. Accordingly the low income, middle and highincome economies.Low income economies are economies with very low per capita income.High income economies are economies with very rich income per capita. Middleincome economies are sub divided into lower middle and upper middle incomewhere income per capita is neither very high nor low.2. Structure of the economyFactors such as contribution of different structure like primary(agricultural), secondary (industrial) & tertiary (secondary) sectors, large,medicine, small sectors to economy. These factors and the nature of each sectorhave business implication. For example, India is one of the largest producers ofagricultural products, because of the small and fragmented nature of land holdings,efficient collection and processing of products become difficult. The land holdingpattern also makes productivity improvements difficult.3. Economic policiesThere are several economic policies which can have very great impact onbusiness. Important economic policies are

a) Industrial policyIt defines the scope and role of different sectors like private, public, jointand cooperative. It may influence the location of industrial undertakings. Choiceof technology, state of operation, product mixes etc.b) Trade policyIt can affect the fortunes of firms. For example a policy of protecting thehome industry may greatly help the import competing industries, while liberationof the impart policy may create difficulties for such industries. This mean the firmshould come up with quality, cost, and marketing and after sales service etc.c) Foreign exchange policyExchange rate policy and policy in respect of cross border movement ofcapita are important for business.d) Foreign investment and technology policyForeign investment and technology policy will increase domesticcompetition at the same time it would benefit many domestic firms bypermitting global sourcing of capital and technology, by increasing the quantityand quality of domestic supply of many goods and services.e) Fiscal policyGovt. strategy in respect of public expenditure and revenue can havesignificant impact on business. The pattern of public expenditure may affect thedevelop of industries. Such as govt. often use tax incentives or disincentives toencourage or discourage certain activities. For ex: when industry suffers fromrecession, a reduction of taxes like excise duty or sales tax may help improve thedemand.

f) Monetary policyThe central bank, by its policy towards the cost and availability of credit,can significantly influence savings, investments and consumer spending ineconomy. For example 1% reduction in cash reserve ratio will significantlyincrease loan able funds with commercial banking systems.

IV. NATURAL ENVIRONMENTThe natural environment ultimately is the source and support of everythingused by business every raw material, energy resource, life sustaining factor etc.The natural environment determines what can be got done in a society andhow institution can function. Resource availability is the fundamental factor is thedevelopment of business in the society.Thus geographical and ecological factors, such as natural endowments,weather and climatic conditions, topographic factors, vocational aspects in theglobal context etc., are all relevant to business.1.Geographical factors: differences in geographical condition betweenmarkets may sometimes call for changes in the market mix. It influencesthe location of some industries.E.g. Industries with material index tend to be located near the raw materialsources2. Climatic and weather conditions: It affects the location of certainindustries like cotton textile industry. Topographic factors may affect the demandpattern in some cases. E.g. in hilly areas Jeeps are greater demand than cars.

Weather and climatic factors affect the demand of certain types of products.E.g. in region where temperature is very high in summer, there is good demand fordesert coolers.Weather and climatic factors can affect the demand pattern of clothing,building materials, food, medicines etc. further, weather and climatic conditionsmay call for modification to the products, packaging storage conditions etc.3. Ecological factors: It assumes great importance, the depletion of naturalresources, environmental pollution another disturbance of the ecological balancehave carried great concern, govt. policies aimed as preservation of environmentpurity and ecological balance, conservation of non-replenish able resources haveresulted additional responsibilities and problems for business.