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1-1 Excel BooksBusiness Environment Suresh Bedi

Copyright © 2004, Suresh Bedi

THE NATURE AND STRUCTURE OF BUSINESS ENVIRONMENT

The Nature and Structure of Business Environment

1Chapter




Introduction

Business environment is the resultant of a number of interacting and constantly changing

social and economic forces It creates challenges, opens up new opportunities and affects

the strengths and weaknesses of various business segments.




The International Environment

The international environment is basically determined by the growth of the world

economy, distribution of world GDP, economic relations and interdependence between

nations and international economic policies of major industrial market economies.

The risk and uncertainty content of the international environment is generally higher as

compared to the domestic environment.

The perceived risk of operating in this environment is basically three-fold:

Political risk,

Country risk

Cultural risk




Domestic Macroeconomic Environment

It is circumscribed by the economic system under which an economy functions. It

describes the level of prosperity indicated by the level and growth of income and wealth

of the society




Economic System

An economic system is a way in which a society is organized to decide the following three

basic questions of any economic organisation:

What products should be produced and in what quantities?

How should the products be produced?; and

For whom should the products be produced?

Major economic systems the world over can be broadly classified as follows:

Market Economy an economic system in which the basic economic questions are left to the

market mechanisms for solutions.

Command Economy where most of the productive assets are owned and operated by the

government.

Contd…




Mixed Economy where ‘market’ and ‘command’ none of the two elements has

dominating presence. Most of the developing economies like India are mixed

economies with public sector and private sector playing important roles together.

Socialist Market Economy where productive resources are owned by the state but the

resource allocation, production and distribution decisions are based on the principle of

the market.




Growth and Distribution of Environment

Economic growth refers to the process of increase in real output over a period of

time There are three basic measures of a country’s real output :-

Gross Domestic Product (GDP)

Net domestic product (NDP)

Gross National Product (GNP)

Contd…




A. Macroeconomic Stability important conditions for the growth of business.

B. Economic Policy

C. Monetary Policy

D. Fiscal Policy

E. Industrial Policy

F. Trade Policy

G. Competitive Environment




Non-Economic Environment

The constituents of the non-economic environment.

Political Environment Political factors, including international political relations,

matter a lot particularly for large multinational firms and export firms operating in a

country.

Legal Environment

Legal system of a country establishes codes and procedures for various types and

aspects of business and deals with deviations or infringement law like bribery, product

counterfeiting, gray markets, black markets, consumer deception and tax evasion.

Cont…




Demographic characteristics of a country like size, growth rate of population,

population density, sex ratio, fertility and mortality rates, age composition, life

expectancy have an important influence on business environment.

Demographic Environment

Cultural Environment

Culture has a profound impact on the language, literature and communication

process within a society and business firms have to adjust their marketing

communication to the cultural characteristics.




Public Relations Environment

Every organisation depends upon, and is in relationship with, a number of outside

groups, organisations and individuals.

A. Suppliers

B. Customers

C. Distribution Channel Members

D. Rivals

E. Other Entities

Sectoral EnvironmentThe business conditions in a particular industrial or service sector are determined by

the nature and level of demand, tax structure, state of competition, technological and

supply factors and government policy relating to that sector.




Internal Environment

The internal environment is critically dependent on line and staff relations, industrial

relations, job design and coordination, team spirit, quality of internal communication,

work and productivity standards, compensation systems and employee motivation.

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Documents

domestic environment

economic relations

economic organisation

economic forces

basic economic questions

society copyright

world economy

major economic systems