Business environment

Business Environment and Its Constituents

Unit 1Amlin David

Karunya University

Definition

• Business environment is defined as a combination of all the internal and external factors that influences a company during its long run. Remember that both internal and external factors can influence each other and work together to effect a business

Constituents of Business Environment

• Micro Environment• Macro Environment

Micro and Macro Environment

• Micro environment is the nearby factors that effect a company’s ability to serve its customers such as the company itself, customers, intermediaries, suppliers etc.

• Macro environment is a condition that exists in the economy as a whole, rather than in a particular sector or a region. Example Trends in GDP, Inflation, employment, spending, monetary and fiscal policy

Factors influencing Micro and Macro Environment

Micro Environment• Suppliers• Customers• Competitors• Marketing Intermediaries• Publics

Macro Environment• Economic Environment• Political Environment• Socio Cultural Environment• Demographic Environment• Physical Environment• Technological Environment• International Environment

Micro Environment Factors

Suppliers

These are the people who supply the raw materials and components to the company.

Sometimes, having one supplier for a company’s products maybe more beneficial, sometimes having just one suppler would have monopoly over price.

As a precaution, company’s could have more than one supplier.

Customers

Business exist only because of it’s customers.

Monitoring customer activity has become an important task for businesses.

Competitors

A firms competitors may not always be the companies producing products similar to it.

Sometimes a company’s competitions could be the produce products within the same range.

Marketing Intermediaries

All the business organisations that in between the supplier and the final customer.

It could be : Agents, Dealers, Wholesalers.

Publics

A company will always have to be in the right limelight with the public.

The media would be the vehicle for the company to project the right image with the outside world.

Macro Environment

Economic Environment

• Economic Conditions of the country. For Example Nature of the Economy.

Whether it is in Recession or boom period Level of Income and purchasing power of the

people

Political Environment Political environment is

important since it has a close relationship with the economic system and economic policy. 

Political environment would they lay down rules for

i) Standards of productii) Packagingiii)Promotion.

Socio Cultural Environment

• This element is also important since it covers.

A)Habits of the people.B)Their languageC)Beliefs and valuesD)Customs and traditions.E)Tastes and preferences

• Level of education

Demographic Environment

•Demographic factors covers:-

A)Population of customersB)Population growth rateC)Life expectancy rate.D)Family sizeE)Occupational status

Physical Environment

• Physical factors would cover:-

1)Geographical factors.2)Weather and climatic conditions

Technological Factors

•Technological factors would cover

1) Technological availability for producing the product.2) Current technological standards that prevail in the

market. Example: When we Think About Computers The latest development and technology on

• Hard Disk

• Ram

• Specifications.

International Environment

• It is important to note:

1)Recession happening in other countries.2)Progression happening in countries • Eg: India and China

What do companies do with all of the environmental factors

• They Perform SWOT Analysis S-StrengthsW- WeaknessO- OpportunitiesT- Threats

FUTURE BUSINESS TRENDS

Worldwide/ International Scene

Staff within the companies, in the company would be trained in worldwide operations rather than just in their own country wise operation.

Parts or components for making a product.

Joint Ventures

• Many companies will want to get into markets of other countries so they would be tieing up of companies to start of new products. Eg Avi Oil Pvt Ltd- Joined venture Holders Balmer & Cp Ltd, NYCO SA, France

Mergers and Acquisitions

• Companies would want to buy – out the competitors so they would broker financial acquisitions and merge with other companies.

• Example : Maersk acquired several other shipping companies like Sea Land

Sourcing

• A lot of products and services will be outsourced to lower cost or to create better efficiency.

• Example: Call Centre, BPO’s which are being outsourced by many companies in the U.S. to India, Philippines and other countries.

Indian Scenario

• Demographic and Social Environment• Rise of Rural Market• Small Firms see unprecedented growth• Big firms may go global from India

Demographic and social Environment

Since the number of people in India have increased and there is an increase in salaries.

The number of people who can purchase products have increase therefore it could be more profitable for companies in India.

Rise of Rural Market

The rural market of India are now serving people with increase salaries and a more profitable area for business.

Small firms may see unprecedented growth

Indian small firms may grow a a good pace since they can have their own niche markets.

For Eg: Small banks operating in Metros like Coimbatore could operate just here. Any bank operating in the Rural areas would see an increase since they would have an advantage over other bigger banks.

Big firms may go global from India

Larger companies have the scope of becoming MNC’s since the companies would have greater potential.

Example TATA Company has bought Rolls Royce and Range Rover from the U.K.

Airtel has gone global since it has acquired 15 countries operations basically from Kuwait. The parent company in Kuwait is called Zain.

Social Responsibility of Business• Business has the social responsibility towardsShareholders – Dividends, Reserves Employees- Salaries, Working Conditions,

Training and developmentConsumers- Better Quality products,

Information, After sales serviceCommunity- Prevent Environmental Pollution,

Contribution to social causes, Development of Rural lndia

Indian Nation- Hospitals, Schools, Libraries

Globalization and its effects

•V Stephen Gill: defines globalisation as the reduction of transaction cost of trans border movements of capital and goods thus of factors of production and goods

Advantages of Globalization• Globalization has

several advantages on the following

1. Economic side2. Cultural side3. Technological4. Social / Cultural5. Ecological side

Economic side

1. Increase in Investments2. No trade Barriers3. Free trade zones4. Exports are on the rise5. Newer currencies

• Increase in investments : Developed countries can invest in developing countries

• No trade barriers : Flexibility of corporations to operate across the borders increases

• Free trade zones : Free trade zones are formed having less or no tariffs

• Exports are on the rise : Due to development of containerization for ocean shipping, the transportation costs are reduced.

• Newer currencies : Capital controls reduce or vanquish and newer currencies are now being seen. Example: Euro

Social/ Cultural change as the result of Globalization

• Multiculturalism Spreads : As there is individual access to cultural diversity

•International travel and tourism increases and immigration between countries increases

Technological developmentsa)EVEN REMOTE AREAS OF THE WORLD ARE NOW BEING CONNECTEDb)E-COMMERCE: BUYING AND SELLING ON THE INTERNET HAS CREATED A GLOBAL COMMON MARKET WHICH HAS A FREEDOM OF EXCHANGE OF GOODS AND CAPITAL.c)INTETRNET USAGE AND FREE INFORMATION: FREE CIRCULATION OF INFORMATION AMONGST PEOPLE OF DIFFERENT NATIONS.d)HI- TECH CONNECTIVITY : DATA NOW FLOWS THROUGH SATELLITES, THE INTERNET, WIRELESS TELEPHONE IN ALL OUNTRIES.

Ecological Developments

• Global Environment problems are being solved such as

a) Cross boundary environmental problemsb) Over fishing on oceansc) Climate change• Environmental protection in developed

countries Increases

Impact of Globalization in India

• Foreign products are now being allowed to be sold in India

• Liberalization of the Indian Industries• Foreign Countries can now invest in India• Increase in economic prosperity• Better Products• Rise of Rural Markets

Thank you