Bus Env - Introduction

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Business Environment

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INTRODUCTION

Business enterprises cannot functionin isolation

Open systems interact with theirenvironment

Business enterprises exist in and are

surrounded by an environment the business or organisationalenvironment

Society and business enterprises are

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Business

Business is the organized efforts of enterprises tosupply consumers with goods and services.Businesses vary in size as measured by numberof employees or by sales volume.

All businesses share the same purpose toearn Profits. However, the purpose of businessgoes beyond earning profits.

It is an important institution in society and therole of business is crucial.

Be it for the supply of goods and services

Creation of job opportunities

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Environment

Environment refers to all external forces which havea bearing on the functioning of business.Environment are largely if not totally external, and

beyond the control of individual industrial enterprisesand their management. These are essentially thegivers within which firms and their managementsmust operate in a specific country and they vary,

from country to country.

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Business environment

However, the term business environment refers to theExternal Factors. The external environment has twocomponents ie business opportunities and threats to business.

Simmilarly, the organisational environment has twocomponents ie. strengths and weaknesses of the organisation.A SWOT analysis is thus the first step in strategy formulation

Business

Decisio

InternalEnvironment

ExternalEnvironment

Factors influencing Business

Decision

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Business

Decision

InternalEnvironmentMission / ObjectivesManagement Structure

Internal PowerRelationshipPhysical Assets &facilities

Company imageHuman resourcesFinancial Capabilities

TechnologicalCapabilitiesMarketing Capabilities

FinanciersSuppliers

CustomersCompetitorsPublicMktgIntermediaries

MicroEnvironment

Economic

TechnologicalGlobalDemographicSocio-Cultural

Political

MacroEnvironment

BUSINESSENVIRONMENT

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Internal Environment

Any business has certain vision, mission and objectivesand a strategy to achieve them. Formulation of strategyis defined as establishing a proper firm-environment fit.Indeed the objectives should be based on an

assessment of the external environment and theorganizational factors (internal environment).

Vision

Mission

Objectives

Management Structure

Human Resources

Financial Factors

Company Image and Brand Equity

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The macro environment consists of factors which arebeyond the control of the business. There is a symbioticrelationship between business and the environmentalfactors, environmental factors are dynamic and aparticular business firm, by itself, may not be in aposition to change its environment. Macro Environmentincludes:

Political Environment

Macro Environment

The Micro environment consists of differenttypes of stakeholders - customers, employees,suppliers, marketing intermediaries, competitors. Itis also known as the Task Environment and

Operating Environment and has a direct bearing onthe operations of the firm. Changes in the microenvironment will directly affect and impinge on thefirm's activities.

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Business Environment

The term business environmentconnotes external forces, factors and

institutions that are beyond thecontrol of the business and theyaffect the functioning of a businessenterprise.

These include customers,competitors, suppliers, government,and the social olitical le al and

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FEATURES OF BUSINESSENVIRONMENT

Business environment is the sumtotal of all factors external to the

business firm and that greatlyinfluence their functioning.

It covers factors and forces likecustomers, competitors, suppliers,government, and the social, cultural,political, technological and legalconditions.

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IMPORTANCE OFBUSINESS ENVIRONMENT

Determining Opportunities andThreats

Giving Direction for Growth:Continuous Learning

Image Building

Meeting Competition

Identifying Firms Strength and

Weakness

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TYPES OF BUSINESSENVIRONMENT

Confining business environment touncontrollable

external factors, it may be classified as

(a) Economic environment; and

(b) Non-economic environment.

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Economic Environment

Economic Environment refers to all forces whichhave an economic impact on Business. The economic environment consists of the

demand dynamics, supply situation, pricingfactors, degree of competitiveness, and impactof profitability. It includes the fiscal policy,monetary policy and the taxation policy, the FDInorms, the investment criterion and financingdecisions. Economic environment includes:

l Growth strategyl Industryl Agriculturel Infrastructurel Money and Capital Marketsl Per capita and national incomel Population

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ECONOMICENVIRONMENTThe survival and success of each

and every business enterprisedepend fully on its economic

environment. The main factors thataffect the economic environmentare:

(a)Economic Conditions:

The economic conditions of anation refer to a set of

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ECONOMICENVIRONMENT

(b) Economic Policies: All businessactivities and operations are directlyinfluenced by the economic policiesframed by the government from timeto time. Some of the importanteconomic policies are:

(i) Industrial policy

(ii) Fiscal policy

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ECONOMICENVIRONMENT

(c) Economic System: The worldeconomy is

primarily governed by three types of

economic systems, viz.,

Capitalist economy;

Socialist economy; and

Mixed economy.

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NON-ECONOMICENVIRONMENT

The various elements of non-economic environment are as follow:

Social EnvironmentPolitical Environment

Technological Environment

Demographic Environment

Natural Environment

Legal Environment

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NON-ECONOMICENVIRONMENT

(c) Legal Environment

(i) Companies Act, 1956

(ii) Foreign Exchange Management Act,1999

(iii) The Factories Act, 1948

(iv) Industrial Disputes Act, 1972

(v) Payment of Gratuity Act, 1972

(vi) Industries (Development and

Regulation) Act, 1951

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Micro EnvironmentalFactor/Stakeholder Analysis

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wEnvironment And Macro

Environment?The micro-environment refers to theforces that are close to the companyand affect its ability to serve itscustomers. It includes the companyitself, its suppliers, marketingintermediaries, customer markets,

competitors, and public.The macro-environment refers to

all forces that are part of the larger

society and affect the micro-

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Technological Environment

Technological is the systematic application of scientific or otherorganized knowledge to practical tasks.

Technological environment hold new technological innovation,new products, the state of technology, the utilization oftechnology for maximum inputs and outputs, the obsolescence

of technology and the dynamic changes that frequently occurin technologies which enable firms to get a competitiveadvantage

Technology reaches people through business

Helps in increased productivity

Business needs to spend on R & D and keep up with thetechnological advances around them

Technology leads to introduction of new products and olderproducts becoming outdated and redundant.

Technological advances leads to high expectations ofconsumers in terms of quality

Leads to system complexity

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Political Environment

Political Environment refers to the influence exerted by the threepolitical institutions ie. legislature, executive and judiciary inshaping, directing, developing and controlling business activities.

The constitution of a country

Political Organisation

Political Stability

Image of the country and its leaders

Foreign Policy

Laws governing business

Flexibility and adaptability of laws

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Global Environment:The global environment refers to those factors which are relevant tobusiness, such as the WTO principles and agreements; other internationalconventions/ treaties / agreements / sentiments in other countries etc. Foreg hike in crude oil prices has a global impact etc.

World is becoming one market

Improving quality

Competition from MNCs

Capital and technology transfers

Deciding which markets to enter and what products to manufacture

Adjusting the management process

Socio-Cultural Environment: Culture creates people

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External Environmental Analysis

Environmental Analysis has three goals:

Provides an understanding of current and potential changes

taking place Environmental Analysis should provide input for strategic

decision making.

Facilitate and lead to strategic decisions within anorganization.

Environmental Analysis and diagnosis give strategists time toanticipate opportunities and to plan to take optional responsesto these opportunities. It also helps strategists to develop anearly warning system to prevent threats or to developstrategies which can turn a threat to a firms advantage.

Firms which systematically analyse and diagnose theenvironment are more effective than those which do not.

Process of Environmental Analysis:

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Environmental Analysis and StrategicManagement

Defining Business Mission and Objectives

SWOT AnalysisEnvironmental Analysis + Self Appraisal

Strategic Alternatives and Choice of Strategy

Implementation of Strategy

Evaluation and Control of Strategy

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SWOT Analysis

SWOT stands for Strengths, Weaknesses,Opportunities and Threats

Identification of the threats and opportunities in theexternal environment and strengths and weaknessesin the internal environment of the firms are thecornerstone of business policy formulation.It is the SWOT analysis which determines thecourse of action to ensure the growth / survival ofthe firm.

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StrengthsStrengthsinternal to the unit; are a units resources

and capabilities that can be used as a basis fordeveloping a competitive advantage; strength shouldbe realistic and not modest.

Your list of strengths should be able to answer:What are the units advantages?What does the unit do well?What relevant resources do you have access to?What do other people see as your strengths?

What would you want to boast about to someonewho knows nothing about this organization and itswork?

Examples: good reputation among customers,

resources, assets, people, : experience, knowledge,

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Weaknessesinternal force that could serve as abarrier to maintain or achieve a competitive advantage;a limitation, fault or defect of the unit;It should be truthful so that they may be overcome asquickly as possible

Your list of weaknesses should be able to answer:What can be improved?

What is done poorly?What should be avoided?What are you doing as an organization that you feelcould be done more effectively/efficiently?

What is this organization NOT doing that you feel itshould be doin ?

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Opportunitiesany favorable situation presentnow or in thefuture in the external environment.

Examples: unfulfilled customer need, arrival ofnew technologies, loosening of regulations, globalinfluences, economic boom, demographic shift

Where are the good opportunities facing you?What are the interesting trends you are aware of?Think of: market developments; competitor;

vulnerabilities; industry/ lifestyle trends;;

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External force that could inhibit the maintenance orattainment of acompetitive advantage; any unfavorable situation in theexternal environment that is potentially damaging now orin the future.

Examples: shifts in consumer tastes, new regulations,political or legislative effects, environmental effects, new

technology, loss of key staff, economic downturn,demographic shifts, competitor intent; market demands;sustaining internal capability; insurmountableweaknesses; financial backing

Your list of threats should be able to answer:

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POSITIVE/HELPFUL

to achieving thegoal

NEGATIVE/HARMFUL

to achieving thegoal

INTERNALOrigin

facts/ factors of theorganization

Strengths

Things that are good

now, maintainthem, build on

them and use asleverage

Weaknesses

Things that are badnow, remedy,

change or stopthem.

EXTERNAL Originfacts/ factors of the

environment inwhich the

organizationoperates

OpportunitiesThings that are good

for the future,prioritize them,capture them,

build on them and

optimize

ThreatsThings that are bad

for the future, putin plans to

manage them orcounter them

SWOT Analysis of Indian Economy

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SWOT Analysis of Indian Economy

Strengths

Huge pool of labor force High percentage of cultivable land Diversified nature of the economy Availability of skilled manpower Extensive higher education system High growth rate of economy Rapid growth of IT / ITes Sector Abundance of natural resources

Weaknesses High percentage of workforce involved in

agriculture

Approx a quarter of population below thepoverty line

High unemployment rate Inequality in prevailing socio economic

conditions, rural urban divide Low productivity Huge population leading to scarcity of

resources Low level of mechanization Red tapism, Bureaucracy Low literacy rates

Opportunities Scope for entry of private firms in various sectors

of business Inflow of FDI Huge foreign exchange prospects in IT / ITeS Investment in R & D Area of infrastructure Huge domestic market : Opportunity for MNCs

Huge agricultural resources

Threats High fiscal deficit Threat of government intervention in

some states Growing import bill Population explosion, rate of growth of

population Agriculture excessively dependent on

monsoon

RECENT DEVELOPMENTS

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RECENT DEVELOPMENTSIN INDIAN ECONOMY

LIBERALISATION refers to theprocess of eliminating unnecessarycontrols and restrictions on thesmooth functioning of businessenterprises. It includes:

abolishing industrial licensingrequirement in most of theindustries;

RECENT DEVELOPMENTS

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RECENT DEVELOPMENTSIN INDIAN ECONOMY

PRIVATISATION refers to reducingthe role of public sector by involvingthe private sectors in most activities.Due to the policy reforms announcedin 1991, the expansion of publicsector has literally come to a halt

and the private sector registered fastgrowth in the postliberalised

period. The issues of privatisation

include:

RECENT DEVELOPMENTS

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RECENT DEVELOPMENTSIN INDIAN ECONOMY

GLOBALISATION meansintegrating the economy of acountry with the world economy.

This implies free flow of goods andservices, capital, technology andlabour across national boundaries.

To achieve these objectives ofglobalisation, the government hasadopted various measures such asreduction in custom duties removal

O

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ENVIRONMENTALSCANNINGIdentification and forecasting

phenomena in the environment

Ongoing environmental scanning isessential for strategy formulation

Enterprises continuously engage inidentifying and forecastingopportunities and threats

Enterprises need to proactively orreactively respond to changingconditions in the environment

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Risk assessment is a step in arisk management procedure. Riskassessment is the determination ofquantitative or qualitative value of risk

related to a concrete situation and arecognized threat

How to Assess Risk: In

E i t f

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Emerging sectors ofIndian economy

Emerging sectors of Indian economyare those sectors which are going tosee an upsurge in the comingdecade are the energy sector, realestate sector, services sector, andthe biofuel sector

A key characteristic of emergingand developing economies is theshift from a riculture to the

EMERGING SECTORS IN

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EMERGING SECTORS ININDIAN ECONOMY

Manufacturing Sector

Food processing

Textiles

Healthcare

Tourism

Entertainment

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Public Sector

The public sector, sometimesreferred to as the state sector orthe government sector, is a partof the statethat deals with eitherthe production, delivery andallocation of goods and services by

and for thegovernment or itscitizens, whether national, regional

orlocal/municipal.

Examples of public sector activity

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Public Sector

The part of the economyconcerned with providing basic

governmentservices.

The composition of the publicsector varies by country, but inmost countries the public sectorincludes such services as the police,milit r li r li tr n it

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OBJECTIVES

To promote rapid economicdevelopment through creation andexpansion of infrastructure

To generate financial resources fordevelopment

To promote redistribution of incomeand wealth

To create employment opportunities

To promote balanced regional growth

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Role of the Public Sector

Filling the Gaps in Capital Goods

Emploment

Balanced Regional Development

Contribution to Public Exchequer- part from generation of internal

resources and payment of dividend,public enterprises have been makingsubstantial contribution to the

Government exchequer through

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Limitations

Poor Project Planning

Over-capitalization

Excessive Overheads

Overstaffing

Under-utilisation of CapacityLack of a Proper Price Policy

Inefficient Management

Causes for the expansion

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Causes for the expansionof public enterprise

Rate of Economic Developmentand Public Enterprises

Pattern of Resource Allocationand Public Enterprises

Removal of Regional Disparities

through Public EnterprisesSources of Funds for Economic

Development