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BUSINESS ENVIRONMENT( INTERNAL & EXTERNAL FACTORS )

CONTENTS BUSINESS ENVIRONMENT LEVELS OF BUSINESS ENVIRONMENT EXTERNAL ENVIRONMENT INTERNAL ENVIRONMENT BUSINESS ENVIRONMENT – PHARMA SECTORCASE STUDIESCONCLUSION

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BUSINESS ENVIRONMENTBusiness environment constitutes factors which influence

important decisions related to business, such as …….,What business to do?

Which segment should be targeted?What strategies be adopted?Where to do the business?When to do the business?How to do the business?

Weather to continue the business, or to expand the business, how to expand the business?

External Environment

Internal Environment

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Business Decision

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LEVELS OF BUSINESS ENVIRONMENT

INTERNAL ENVIRONMENTo All factors that are internal to the organization are known as

internal environment,

They are…..

2. EXTERNAL ENVIRONMENTa. MICRO / OPERATING ENVIRONMENTo Micro environment is called as the task environment and operating environment.o Micro environment forces have a direct bearing of the operation of the firm.o These factors and affect the performance of the companies.

b. MACRO / REMOTE ENVIRONMENTThis includes all factors that can influence an organization, but that

are out of their control.

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EXTERNAL ENVIRONMENT

EXTERNAL ENVIRONMENT

MICRO ENVIRONMENT

CustomersSuppliersCompetitorsMarketing Intermediates

MACRO ENVIRONMENT

Economic FactorsSocial, Cultural FactorsDemographic FactorsPolitical FactorsNatural FactorsTechnological Factors

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MICRO ENVIRONMENTCustomersSuppliersCompetitorsMarketing Intermediates

Customers – Business exists because of customers Monitoring customers sensitivity is perquisite Today customer is global customer as exposed to global products

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Suppliers – Those who supply inputs, raw material and components Uncertainty in supply compels high inventory cost. India maintains stocks of 3 to 4 months where as Japan maintains for few hours. Risk to depend on single supplier  Globally companies are resorting to partnering relationship marketing

Marketing Intermediary: Firms that aid the company in promoting, selling and distributing its grads to final buyers. Includes middle men, agents, merchants, distribution firms, warehouses, transportation firms, marketing, financial intermediaries, insurances etc.

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Competitors: Competition includes not only with competitors of same product but all those who compete for discretionary income of consumers. Eg: the competition for TV firm may not be only from other TV manufacturing but also from 2 wheelers, refrigerators, cooking ranges, stereo sets etc, bank schemes which influence basic desire of customer 

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MACRO ENVIRONMENT

Demographic environmentNatural resourcesTechnology developmentSocial environmentPolitical environmentEconomical environment

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DEMOGRAPHIC FACTORSBirth rate Age compositionFamily sizeEthnic composition & density of populationLabor supply

BIRTH RATE – Declining birth rate poses a problem for many business, because decline in birthrates leads to fall in the size of baby population. So market for baby products decreases. Eg: Johnson & Johnson paying more attention on international markets of baby products.

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FAMILY LIFE CYCLE Decline in baby population is boon for Some businesses like Hotels, Airlines, Restaurants etc Fact, childless couples have more time & income for travel & dining out. Even small families also have same advantage when compared with bigger family

FAMILY SIZE In some counties collapse in birthrate is an opportunity, where a family can spend more on a baby. Eg: china, India

ETHNIC COMPOSITION & DENSITY OF POPULATION Immigration brought about very remarkable ethnic changes in the USA In America in 1950 there are 89% of white & 10% of black people. by 2050, 1 in 4 will be Latinos & 1 in 3 will be Asians. A highly heterogeneous population with its varied tastes & preferences give rise to differing demand patterns & calls for differing marketing strategies.

LABOR SUPPLY High population growth also implies an enormous growth in the labor supply. Cheap labor & growing market encouraged many MNCs to invest in developing countries.

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SIZE OF POPULATION - is an important determinant of demand for many products When population is very large , even if the country is poor, there could be a sizeable market for goods & services E.g: just 5% population of India is larger than the population of many high income countries. World population in 1999 was 6 billions, By 2014 it will be 7 billions. More than half in the next billion will come from south Asia, 1% from Europe & central Asia & 3% from all high income countries. Poor countries with small population are generally not attractive for business Advanced countries with large population are generally attractive markets

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NATURAL ENVIRONMENT

RESOURCES AVAILABILITY Is the fundamental factor in the development of business.

NATURAL DISASTERS : They influence the decision making in selecting the location of business. e.g: GUJARAT, JAPAN

TOPOGRAPHICAL FACTORS : May affect demand patterns in some cases, Eg: in hilly areas terrain jeeps are in greater demand than cars.

WEATHER & CLIMATIC FACTORS : Affect the demand of certain type of products Eg: in regions where temperature is very high in summer, There is good demand for desert coolers & In regions where temperature is very low in winter, There is a good demand for room heaters. Can affect the demand pattern for clothing, designs, food, medicines, building material etc

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TECHNOLOGY ENVIRONMENTIs one of the important determinants of success of a firm as well as economic & social development of nation.It is also important determinant of global competitiveness.

INNOVATION Innovation may take any of following forms, introduction of new product, the use of new method for production, the new source of raw materialTechnical innovation,109

TECHNOLOGY LEADERSHIP & FOLLOWERSHIP

TECHNOLOGY & COMPETITIVE ADVANTAGE

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SOCIO & CULTURAL ENVIRONMENT

RELIGION: Religions, beliefs, customs, sentiments etc have important implications for business. The increasing influence of religion & cast on politics tend to increase the importance of religion to business.

ETHNO DOMINATION: In some countries some types of business are dominated by some ethnic groups. Eg: in INDIA, automobile spare parts business is dominated by Sikhs. In Karnataka, There is dominance of Vysya community in banking & money lending

LANGUAGE: INDIA has numerous languages besides 18 officially recognized languages. There are 1652 mother tongues listed in INDIA & there are 33 languages spoken by people a lac or more. Some words have different meanings in different areas Eg: BRITAIN - the project went a bomb – means it was a great success. In USA – it was a massive fail.

REGIONAL FESTIVALS: There is huge demand during festivals in a particular region.

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POLITICAL ENVIRONMENT

Political leaders are the representatives of the public and the spokesmen of its opinion. Therefore, business and politics are closely related. Without a clear understanding of dynamics of politics and the support and encouragement from the politicians, business cannot prosper

Chief Minister of Gujarat said that the government has launched most investor friendly industrial policy by offering lowest power tariffs. The policy covers, Investment subsidy, reimbursement of VAT, Single Window clearance system and special incentives for mega projectsThe state has witnessed huge investments in recent past through Capital Expenditure (CAPEX) expansions, new projects, and also in the new Pharma SEZs

GOVERNMENT,LEGAL & REGULATORY ENVIRONMENT

some governments specify certain standards for products to be marketed in the country.

Some even prohibit the marketing of certain products. In most nations promotional activities are subject to various types of control Eg: baby products must not be promoted as substitute for breast feeding. In germany product comparison advertisements & use of superlatives like BEST & EXCELLENT in advertisements are not allowed.

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REGULATORY ENVIRONMENT

There are two major government agencies responsible for drug regulation and control:

1) the Drugs Controller of India (DCI), and 2) the State Food and Drug Administrations (FDAs).

There are also two main statutory bodies

formed by Parliament:

1) the Drugs Technical Advisory Board, 2) the Drugs Consultative Committee.

Current Reforms:

FDA of Maharashtra The most powerful state-FDA is located in the west Maharashtra. Over 50% of manufactured drugs in India are currently produced in Maharashtra and Maharashtra's FDA therefore plays a large role in determining national policy on the import and local manufacture of pharmaceuticals in India.

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•Maharashtra's FDA underwent some major changes over the past few years to improve its efficiency and raise its credibility.

•Under the present Commissioner, Anil Kumar Lakhina, the Indian FDA has revamped its structure, introduced a new drug management system, and

instituted a new electronic drug renewal application procedure via its website.

• It has also started codifying all pharmacopoeial, patent and proprietary combinations of drugs -- there are currently 50,000 drugs all licensed by the

FDA and 4,300 of them have already been codified.

The Andhra Pradesh State government has promoted five Pharma SEZs and four Biotech SEZs developed by APIIC and

local Pharma industrialists.

A cluster for manufacturing of Medical Devices & Equipments called “Medtech valley” has also been launched at

Jawaharnagar near Genome Valley, the Biotech Hub of India.

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Economic environment

Macroeconomic changes and influences on the macro economy by governments

Fiscal policy – government regulation related to taxing and spending

Monetary policy – government regulation of the money supply.

These include interest rates, taxation changes, economic growth, per capita income and exchange rates.

Certain changes in government policies such as industrial policy, fiscal policy, tariff policy, may have profound effect on business. Eg: industrial policy liberalization in INDIA have opened new opportunities, threats & They have provided a lot of opportunity to diversify. But they have also given rise to serious threats to many existing products by way increased competition. Many sellers markets have given way to buyers markets. Products which were seldom advertised have come to be promoted very heavily. This battle for the market has provided a splendid opportunity for advertising industry.

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INTERNAL ENVIRONMENT

Vision, Mission, Objectives Management Structure & Nature Internal Power Relationship Company Image & Brand Equity R & D Technological Capabilities

Vision, mission & objectives –Company’s priorities, direction of development, business philosophy, business policy are guided by the vision, mission & objectives of the company

Eg: appolo hospitals

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Management structure & Internal power relationship –Factors like the amount of support the management have from different levels of employees, shareholders, & board of Directors have important influence on the decisions & their implementation.

Company image & brand equity - The image of company matters while rising finance, forming joint ventures, launching new products etc Eg: HeroHonda

R & D technological capabilities –R & D technological capabilities, determine a company’s ability to innovate & compete

BUSINESS ENVIRONMENT

INTERNAL ENVIRONMENT

Vision, Mission, ObjectivesManagement Structure & NatureInternal Power RelationshipCompany Image & Brand EquityR & D Technological Capabilities

EXTERNAL ENVIRONMENT

MICRO ENVIRONMENT

CustomersSuppliersCompetitorsMarketing Intermediates

MACRO ENVIRONMENT

Economic FactorsSocio-Cultural FactorsDemographic FactorsPolitical , government, regulatory FactorsNatural FactorsTechnological Factors 21

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CASE STUDY 1

MANAGEMENT STRUCTURE &NATUREINTERNAL POWER RELATIONSHIP

A medium sized pharmaceutical company a few years ago faced a conflicting situation between divisional managers & product managers. The divisional managers felt that the product managers were having a jolly good time, with out any responsibility while they(the divisional managers) were sweating it around the field.They were not clear about position in organizational hierarchy. The product managers on the other hand felt that they were getting lower remuneration package.There was growing dissatisfaction .Company realizing this reacted positively & clarified that divisional managers & product managers are same at the level on the organization ladder.To communicate this they introduced job rotation program which resulted in personnel as well as organization development.

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BUSINESS ENVIRONMENT - PHARMA SECTOR

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Vision, Mission, ObjectivesR & D Technological Capabilities

Human Resources

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Business Environment- Pharma Sector Cont….

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CASE STUDY 2

GLAXO, the BRITISH pharmaceutical giant, had developed RANITIDINE and launched it under the brand name ZANTAC in a number of countries. At that point of time SKF’S TAGMET was supreme in the anti ulcer market with annual sales of over US $950 m and was trying to become first ever drug to cross us 1 billion mark. But ZANTAC of GLAXO shattered all those dreams, and ZANTAC became the first ever prescription drug to cross the us 1 billion mark.

COMPANY IMAGE & BRAND EQUITY

In INDIA they launched product in 1986 and they followed skimming strategy for ZANTAC brand of RANITIDINE.

GLAXO by following a skimming strategy for their ZANTAC in INDIA, not only recovered the development costs faster but could also afford the heavy promotional expenditure in establishing it as a market leader.

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POLITICAL, GOVERNMENT & REGULATORY ENVIRONMENTThe company had to drastically reduce the price of zantac consequent to DPCO 1987, to almost half of its introductory price.When government forced to reduce price of zantac, glaxo followed aggressive market growth strategy, thereby increasing its sales volumes.The result is a leadership position in indian anti-ulcer market with over 20% market share, growing at an impressive 18%.The reduction in price however, did not affect the image of product since doctors & dealers are aware of price reduction was not voluntarily but a result of a government order.

CASE STUDY 2 CONT…

MARKETING INTERMEDIATESDoctors & chemists

The company followed very aggressively A promotional strategy which included seminars, lecture session for doctors in all CLASS-1 CITIES and METRO CITIES by eminent gastroenterologists from all over the world & highly trained medical representatives.

And differentiated their product in the form of a specially coated tablet (all other formulations are plain tablets).

Consequently GLAXO achieved brand leadership for their ZANTAC in the very first year of introduction.

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CASE STUDY 3

COMPETITORS NORFLOXOCIN a broad spectrum anti-biotic highly effective in urinary tract infections, was introduced in INDIAN market in 1988.the market size for urologicals was around RS. 16 crore in 1988. the introduction of NORFLOXACIN accelerated the annual growth rate to 105%. a number of brands were introduced in quick succession. but CIPLAs NORFLOX was a brand leader right from the beginning, with a share of 19.3%.regarding price , almost all the brands were selling at around RS.8/capsule of 400mg strength. NORLIET brand of norfloxacin from Dr.REDDYs labs achieved cost leadership very quickly.the cost effectiveness of their norfloxacin manufacturing was very high that they were able to market their norfloxacin brand,NORILET, at less than half of the prevailing market price. NORLIET 400mg was priced around Rs.4/capsule. not only that it created an entry barrier ,no brand of NORFLOXACIN was introduced for long time. and they became the largest manufacturers of NORFLOXACIN in the world.

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CASE STUDY 4

TECHNOLOGY DEVELOPMENT

FEROL, the pregnancy haematanic from SKF(in INDIA known as ESKEYLABS) FEROL was nothing but a haematanic preparation containing 150mg of ferrous sulphate & 0.5 mg of folic acid. there were many other products with same ingredients in even higher quantities. but ferol presented a different kind of capsule known as “SPANSULE”, which contains the API in the form of tiny pellets-hundreds of them in each capsule & these are coated specially to ensure timed disintegration. they result is a beautiful see-through capsule with hundreds of multi - coloured time release pellets, with the benefit, freedom from side effects associated with oral iron therapy. they communicated this benefit to doctors very effectively and introduced a new brand, FESOVIT. they have promoted this brand vigorously and today they are the leaders in multi-haematanics in INDIA with about 15% of market share. 28

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CONCLUSIONDr.REDDYs LABS created entry barrier, with efficient technology.

GLAXO recovered the development costs faster & also the heavy promotional expenditure by its brand image.

GLAXO wisely converted threat by govt as opportunity to increase volume of sales by following penetration strategy.

SKF(ESKEYLABS in INDIA) became brand leader of multi - heamatanics.

So…….Business environment helps in forecasting market & very much helpful in knowing the strengths, weakness, opportunities, threats (SWOT) for company.