Unit-1 Type of Business Environment

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BUSINESS ENVIRONMENT

BUSINESS IS AN ECONOMIC ACTIVITY BECAUSE IT INCLUDES ALL THOSE ACTIVITIES WHOSE PURPOSE IS TO EARN PROFIT BY TRANSFER OR EXCHANGE OF GOODS & SERVICES.Business may be defined as human activity directed towards producing or acquiring wealth through buying or selling of goods.-C.H.Haney

-ENVIRONMENT MEANS THE SURROUNDINGS OR CONDITIONS IN WHICH A PERSON, ANIMAL, OR PLANT LIVES OR OPERATES.

-ENVIRONMENT MEANS THE SURROUNDINGS, EXTERNAL OBJECTS, INFLUENCES ORCIRCUMSTANCES UNDER WHICH SOMEONE OR SOMETHING EXISTS.

Business Environment is that group of factors which provide new opportunities for business or create new challenges for the same.

The environment includes factors outside the firm which can lead to opportunities for or threats to firm. Although there are many factors, the most important of the sectors are social-economic, technological, supplier, competitors, and government. -William F. Glueck and Lawrence R. Jauch

FEATURES OF BUSINESS ENVIRONMENT Business

environment is the sum total of all factors external to the business firm and that greatly influence their functioning. covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions. business environment is dynamic in nature, that means, it keeps on changing.

It

The

FEATURES OF BUSINESS ENVIRONMENT The

changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment.

Business

Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

IMPORTANCE OF BUSINESS ENVIRONMENT

Determining Opportunities and Threats Giving Direction for Growth Continuous Learning Image Building Meeting Competition Identifying Firms Strength and Weakness

TYPES OF BUSINESS ENVIRONMENT

Internal Environment

Business Environment

External Environment

TYPES OF BUSINESS ENVIRONMENTBUSINESS ENVIRONMENT

Internal Environment

External Environment

-Value System

-Mission and Objectives-Management structure/ Nature -Internal Power

Micro(Task/ Operating ) Environment-Suppliers -Customers

Macro (General/ Remote) Environment-Economic Factors -Social/culture Factors

-Competitors

-Company Image/Brand equity -Human Resource -Miscellaneous Factors

-Demographic Factors-Marketing Intermediaries -Publics -Natural Factors -Financiers -Technological Factors -Global Factor -Political/ Govt. Factors

Internal Environment

INTERNAL ENVIRONMENT

Value System

The value system of the founders and those at the helm of affairs has important bearing on the choice of business, mission and objectives of the organization, business policies and practices. The value system of the organization influence its portfolio strategy, HRM, marketing strategy and CSR. What are the core values of your business? Examples of values like: Timeliness, Reliability, Convenience , Driving internal efficiency, Customer satisfaction, Customer intimacy, Transparency, Accountability, Brand and business reputation, Quality, Innovation, etc.

INTERNAL ENVIRONMENT

Value System

Example:After the EID Parry group was taken over by the murugappa group, one of the most profitable (liquor) of the ailing parry group was sold off as the liquor business did not fit into the value system of the Murugappa group.

INTERNAL ENVIRONMENT

Mission and objectives:The business domain of the company, priorities, direction of development, business philosophy, business policy, etc. are guided by the mission and objective of the company.

Example: Ranbaxys thrust- To become a research based international pharmaceutical company. Arvind Mills mission To achieve global dominance in select businesses built around our core competencies through continuous product and technical innovation, customer orientation and focus on cost effectiveness

INTERNAL ENVIRONMENT

Management Structure and NatureThe organizational structure, the composition of the Board of Directors, extent of professionalization of management etc., are important factors influencing business decisions. Some management structures and styles delay decision making while some other facilitate quick decision making.

For example: Flat organizational structure and tall organizationalstructure. Centralization and decentralization, etc.

INTERNAL ENVIRONMENT

Internal Power Relationship

Factors like the amount of support the top management enjoys from different levels of employees, shareholders and board of directors have important influence on the decisions and their implementation. Example: -Issue of Hero Honda company.

INTERNAL ENVIRONMENT

Human ResourcesThe characteristics of the human resources like skill, quality, morale, commitment, attitude, etc., could contribute to the strength and weakness of the organizations. Some organization find it difficult to carry out restructuring or modernization because of resistance by employees whereas they are smoothly done in some others. Example: Employees of Tata group.

INTERNAL ENVIRONMENT

Company Image and Brand EquityThe image of the company matters while raising finance, forming joint venture, soliciting marketing intermediaries, entering purchase or sale contracts, launching new products etc. Brand equity is also relevant in several of these cases.

Example: - scandal of Satyam company, - coke & pepsi( pesticide issue). - Lakme company

INTERNAL ENVIRONMENT

Miscellaneous Factors

Physical Assets & Facilities R&D Technological Capabilities Marketing Resources Financial Factors

EXTERNAL ENVIRONMENT

External EnvironmentMicro Environment Macro Environment

MICRO ENVIRONMENTMicro or task environment is more specific and immediate environment in which an organization conducts its business. -Dunham & Pierce

1. SUPPLIER

Those who supply the inputs like raw material and components to the company. The importance of Reliable Source/Sources of supply to the smooth functioning of the business is obvious. Uncertainty regarding the supply or other supply constraints companies to maintain high inventories causing cost increases. compel

Example: India and JapanBecause of the sensitivity of the supply, many companies give high importance to Vendor development. Vertical integration, where feasible, helps solve the supply problem.

For example, -Nirma company has always been a believer of the logic that captive production plants for raw materials is the best way to production costs in check .In many cases, however, outsourcing is more beneficial. - HATHI CEMENTVery risky to depend on a single supplier

2. CUSTOMER

The major task of a business is to create and sustain customers. A business exits only because of its customers. Monitoring the customer sensitivity is, therefore, a prerequisite for the business success. Different categories of consumersIndividuals Industries and other commercial establishments Government and other institutions. Example: the customers of tyre company-Individual automobile owners,automblie manufacturers, public sector transport undertakings and other transport operators.

Depending on single customer is too risky In Choosing the customer segments, a company should consider such factors asRelative profitability dependability stability of demand extent of competition

3. COMPETITORSA firms competitors include not only the other firms which market the same or similar product but also all those who compete for the income of the consumers. like oDesire competition oGeneric competition oProduct form competition oBrand competition

4. MARKET INTERMEDIATESo

o

Firms that aid the company in promoting, selling and distributing its goods to final buyers. Includeo

o

They are vital links between the company and the final consumers.

the middlemen and merchants who help the company find customers or close sales with them such as o Physical distribution firms which assist the company in stocking and moving goods from their origin to their destinations such as ware houses and transportation firms, etc. o Marketing service agencies which assist the company in targeting and promoting its products to the right markets such as marketing research firms, media firms and consulting firms, etc. o Financial intermediaries which finance marketing activities and insure business risks

5. FINANCIERS

Another important micro environmental factor is the financiers of the company. Besides the financing capabilities, their policies and strategies, attitudes (including attitude towards risk), ability to provide nonfinancial assistance etc. are very important.

6. PUBLIC A company may encounter certain publics in its environment.

A public is any group that has an actual or potential interest in or impact on an organization's ability to achieve its interests. It includes: Media public, local publics, Government publics, financial publics, general public , etc. Some companies are seriously affected by such publics. For example, one of the leading companies in India was frequently under attack by the media public, particularly by a leading daily which was allegedly bent on bringing down the share prices of the company by tarnishing its image. Such exposures or campaigns by the media might even influence the government decisions