BUSINESS ENVIRONMENT

Definition: Business environment is the set of factors (both inside and outside the organization)
that may influence the firm’s ability to attain its goals (i.e. factors that influence business
decisions directly or indirectly).

The knowledge of business environment is the key to the organization’s success because it
presents both opportunities and constrains/ threats/ challenges. Business management must
monitor changes in the environment to take advantage of opportunities and deal with the
challenges it presents.

The Business environment consists of two broad categories

1. The micro – business environment or internal and controllable forces/ variables/ factors
that affect the firm’s ability to achieve its objectives. The internal environment of business
consists of;

a) the firm itself (organizational aspects) i.e. functional areas of production, marketing,
employees / personnel and finance, and
b) operating environment that consists of suppliers, customers, markets, and intermediaries
and other publics (finances, employees. government, and general public)

2) External or macro – business environment: refers to the firm’s outside forces or variables
that pose opportunities and threats to the way it is carrying out its business activities and achieve
its goals .These variables are largely beyond the control of the business and include:-
demographic , socio-cultural, technological , economic , political/legal , physical/ natural ,
competitive and international environments.

MICRO –ENVIRONMENT OF BUSINESS

The micro - environment consists of all the forces or factors that directly or indirectly influence
the firm’s ability to achieve its objectives. It consists of :

 The company itself i.e. its functional areas, philosophy and culture.

 Operating environment i.e. interaction with stakeholders such as suppliers, government

and other publics such as financiers, employees etc.

The company itself: -

The organization structure of the company has a lot of influence on the way it conducts its
business. A company’s functional areas such as production, finance and accounting, marketing
and personnel should harmoniously work toward the achievement of organizational objectives.
 Interdepartmental conflicts are likely to negatively impact the attainment of the company’s
goals of satisfying its customers or clients. Thus every dept. must contribute in some way toward
the fundamental purpose of business for instance: -

 Top management – must set the company’s mission, objectives and policies. All other
depts. must make decisions in the context of set by top mgt.

 Finance function (department)- helps the organization to be cost –effective through

ensuring their allocation to various activities

 Personal function – ensures that appropriate staff are recruited, trained, compensated
and motivated so that they can be productive and serve the customers better

 Production- ensures the acquisition of sufficient productive capacity to meet targets,

product quality and quantity standards needed by the customers

 Research and development- focuses on researching and developing new products to

satisfy customer needs and wants

 Marketing functions- identifies customer needs and wants, informs production dept to
produce what is required by customers and ensures that the products are delivered to the
customers at the right place, time and price

Business operating environment:

A company’s success in achieving its objectives is affected by the interaction with several actors
/ factors within its operating environment such as suppliers, competitors, intermediaries
customers and publics. This can elaborately be explained as follows:

1) Customers

Both current and potential customers affect the survival of the business. Business must therefore
identify the customers and their needs and develop ways to satisfy such needs at the right time or
right price and in the right place. A company’s customers can consist of: -

 Consumer markets i.e. individuals and households that purchase goods and services to
persons consumption/use.

 Industrial/ organizational markets i.e. organizations that purchase products to produce

other products for the purpose of making a profit and/or achieving other objectives.

 Research markets – govt agencies that buy products in order to produce public services
or transfer these goods and services to those who need them.

 International markets - buyer or customers found abroad including foreign consumers,

producers, researchers and government.
 2) Suppliers:

Individuals and firms that provide resources (raw materials and components) to the organization
and its competitors to produce `goods and services.

Business and firms must monitor development in the supplier’s environment such as price
trends of raw materials, availability of suppliers and other events in the supply markets such as
industrial market to ensure that they do not negatively impact operations.

For instance, delay in delivery or loss of supply may lead to poor customer s relationship or
loss of goodwill.

Managers must also make a good choice of suppliers, negotiate terms and build good business
relationship that is essential for long-term success of operations.

Executively must also monitor development in the macro – environment such as technological
breakthrough, legal and regulatory constraints, economic and socio-cultural changes that may
present opportunities and threats to the organizations supply of resources.

3) Competitors:

Both direct and indirect competitors are important part of the firm’s operating environment
because they pursue the same set of customers as the organization.

The business competitive environment consists of other businesses that pursue the same products
or brands, compete for some raw materials (supplies) and even distribution channels – both
locally, domestically or abroad. Firms have to appropriately respond to challenges posed by
competitors in order to gain competitive advantages. These resources identify who the
competitors are, their activities and possible future competitive behavior and designing measures
to contact them.

4) Intermediaries:

These are other firms that assist the organization in promoting selling and distributing its goods
and services to the final consumers/ buyers i.e. provide valuable services that link the producer
(manufacturer) and the end user. They include;

a)Middlemen:

 Are firms that help firms to find customers and / or close sales with them. They include
agents, brokers and manufacturers’ representatives. They create special utilities that the
producer cannot due to high costs such as place, time, quantity, assessment and
possession utilities. Proper selection of middlemen and building a good relationship are
key to success i.e. marketers must carefully select, manage and satisfy such middlemen
otherwise there will be exclusion or distribution support.
 c) Physical distribution firms or distributions :

 Firm has to decide on most cost – effective mode of transportation or shipment, balancing
such considerations on cost, timely and side deliveries.

d) Marketing service agencies

Such as marketing research firms, advertising or media agencies and marketing consulting firms
that assist the company in targeting and promoting its products to the right markets. Decisions as
to whether to carry out marketing services in house or contract other firms from outside will
affect the operations of the organization. If outside agencies are to be used, choice has to be
made in light of creativity, quality, service and cost, continued performance evaluation and
replacement of underperformance.

e) Financial intermediaries

Firms that influence the firm’s ability to obtain funds for its operations such as banks, investment
company and other financial institutions. Most business firms depend on these institutions to
finance their transaction, and the firm’s performance once can be seriously affected by changes
in the financial intermediaries’ environments such as rising interest rates.

5) Employees

Employees of all cadre and their attitudes can have a big impact on the firm’s operations. The
level of skills, the number of workers and the activities of unionizable workers greatly affect
personnel and general operation decisions. Management must determine the appropriate
compensation, terms and conditions of employment for successful attainment of organizational
objectives.

6) Managers (management):

Managers are the decision – making organ in the organization and attitudes, leadership style and
management philosophy affect the performance of the organization. Thus quality of mgt is
important for competitive business operations.

7.) Owners (or shareholders):

Sole proprietorships and privately owned companies are usually owned and managed by the
same people. Companies are owned by shareholders who may or may not be managers.
Shareholders have voting rights that can influence organizational decisions regarding policy,
objectives and strategies. Owners of business are interested in the maximization of their wealth
and sometimes thus may conflict with the interests of management. However, management
decisions are made with the view of keeping the shareholders happy even when this may
compromise the long – term effective performance of the business
 3) Government:

All forms of business have to deal with government on all matters affecting its operations such as
product quality and safety specifications or standards, trade practices and employer- employee
relationships, trade unions, taxation, consumer and environmental protection. The extent of
government involvement in business and its activities have a great influence on business
performance in terms of costs, reverences and profits

9) The public

Business is a creation of society and thus has a duty to serve it as effectively and efficiently as
possible. Efficient business should ultimately benefit society through benefits such as reduced
prices, employment, and contributions to the community’s welfare and protection of the
environment. Poor quality products and after sales services can lead to poor reputation from
which firms suffer in the end .

Favorable public image of a company can be an asset for its successful performance for this
reason, large companies employ public relations officer to deal with the general public in order
to create a strong cooperate image .This is because the society’s attitude toward the company’s
product and activities affect its patronage. Consumer groups (citizen action groups) such as
affirmative action groups, environmental protection groups, consumer protection groups affect a
company’s policies.

THE MACRO – BUSINESS ENVIRONMENT: Refer to the non-controllable external

factors which present both opportunities and threats to the business entity.
PHYSICAL ENVIRONMENT:

 Refers to such natural factors as topography or relief, climate, natural resources,

infrastructure (e.g. waters, electricity, roads, barriers, etc) that influence business
favorably or unfavorably in the pursuit of its objectives. -Climatic conditions influence
the nature and type of business or economic activities. For instance the northern part of
Kenya is semi-arid and economic activities of the nomadic people influence the business
activities is such areas .Inland water supply from lakes and rivers and the coastal waters
are a source of fish i.e. fishing industry, shipbuilding and its related industries.

 Kenya’s forests (high forests, savanna, woodland and coastal forests) are a source of
timber industry, agricultural business activities and wildlife resources (tourism). Thus,
availability of natural resources such as oil, minerals, forests, water etc affect the location
of industry in a country because of different needs and wants.

 The physical resources affect the business enterprise’s efforts. For instance, concern over
the protection of the environment has raised issues of the role of business in the
alleviation of problems of pollution and preservation of natural resources. The social
 responsibility of business to protect the environment increases the cost of production and
distribution of goods and services i.e. cost of doing business.

ECONOMIC ENVIRONMENT:

Refers to the system of production, distribution, consumption and exchange of goods and
services in a country i.e. the nature of economic activity.

Business people need to be concerned with economic factors that impact their business
decisions. They include: - national/ regional incomes, business cycle stages ,inflationary levels ,
savings , interest rates or consumer credit, government economic policy including monetary
policies, fiscal policies ,regional economic development policy ,international trade policy and
international business policies such as exchange rates and tariffs , Employment levels ,Financial
market structure, Balance of payment ,International financial systems i.e. World Bank, I.M.F.
This can further be discussed as follows:

1) National incomes

National incomes are an imported factor that affects how much individual,s households and
organization can spend. The components of income include: -

Gross National Product, Income per capital- influences the amount of disposable income (net
income after deductions) and indicates the level of modernization and income distribution e.g. in
Kenya , 20% of Kenya’s population receives 3% of national reserve The uneven distribution
among regions influences the level of business activity (e.g. urban and rural, semiarid and arid
plus agriculturally rich districts.

2) Business cycle stages

Such as prosperity (boom), recession, depression, or recovery. Consumers resort to different

strategies to deal with each of the cycle stages. For instance, during recession, consumers reduce
their spending, resort to economy versions of products or even postponement of buying certain
products (e.g. durable goods). Business managers have to adjust their strategies as well during
each business cycle stage.

3) Inflation:

Is the general rise of the level of prices of goods and services.

The continued inflationary pressure with double digits in Kenya has had a serious impact on the
prices of goods and services.

High inflationary rates have been fueled by rising oil prices, lack of competition in certain
sectors (public utilities), trade union pressure for legal labour wages, unfavorable trade balances
(making imports more expensive than exports), high government expenditure on nonproductive
capital, investment and inflationary expectations. Inflationary effects in consumers include
searching for money saving opportunities by buying cheaper retail outlets or even bartering
services with others. This consequently affects promotional, distributional, product and pricing
strategies.

4) Savings:

Consumer’s savings affect their spending/ expenditure patterns as this provides a source of
financing their major purchases .Savings also provide a major source of capital purchases.

5) Interest:

The cost of credit or interest rate affects the consumer’s purchases power. Interest rates
determine how much individuals and business organizations they can borrow to finance their
expenditure. Changes in interest rates affect the attractiveness of consumer credit. Government
economic policy especially monetary affects interest rates.

6) Government economic policy :

i) Monetary policies

Such as devaluations of currency, interest rate controls by central bank, control of financial
activities (e.g. financial activities of bank and other lending institutions)

ii) Fiscal policies

 such as taxation of both individuals and business firms. Includes direct tax (income tax
and other contributions plus indirect tax (sales tax or VAT) that reduce amount of
dispensable income or increase the prices of products. Sometimes business has to absorb
tax increases or pass them to the consumer.

iii) Government spending

 Govt. purchases goods and services such as defense, consumer projects, social and health
infrastructure (services)

 -Such Govt. spending can be used to stimulate or depress economic development and can
have positive or negative impact on business activity.

iv) Regional economic development policy

 Regional economic development policy for equitable or balanced growth programmes

influence business decision – making e.g. tax credit or incentives to encourage regional
development or indigenous business enterprise through such measures such as subsidies,
low – interest loans, grants tax breaks, labour training and retraining export credit
insurance etc.
v) International trading activities i.e

 a) Trading blocs and trade agreements such as E.A.C, COMES A, AFRICAN UNION,
EU, NAFTA, WTO affect the level of business investment in various sectors of the
economy

 b) Government also negotiates membership to certain international trading blocs, terms

and conditions of international trade agreements that have profound effect on business
activities.

 c) The existence of trade agreements also affects business e.g. protection policies
(protection of certain business sectors / domestic production, nations (through GATT that
aim to eliminate export business etc. )

7. Balance of payments:

Such as surpluses or deficits relative to international trade.

8. National infrastructure

 relates to transformation, energy consumption, communication systems ( telephone,

media) plus commercial infrastructure such as banking, advertising agencies, legal
insurance, accounting and other services.

POLITICAL / LEGAL ENVIRONMENT

 Political systems, institutions and processes in a variety of ways both at domestic and
international levels affect business decisions. Development in the political/ legal
environment create both constraints and an enabling mechanism for business operations

 This environment comprises of the following elements

a) Political system

Such as political ideology of the current political party system, nationalism, political stability and
permanency of government policies and international relations. Political activities affect
decisions at local, regional, national and even international levels through the cabinet, parliament
and local governments and commitment .Political climate i.e. hostile, sensitive on issues or
favorable.

b) Legislation (or laws and regulations)-

Business operate within the legal framework of both national and local governments derived
from judicial decisions of the court systems. Business must exist in and operate with in
accordance with the laws of society within they do business such as general of constant laws of
contract and commerce labor laws and regulations governing product standards safety ,
manufacturing processes, pollution controls, copyright and patent, formation, competition and
business ethics and statutory enactments

 The purpose of such legal mechanisms is to protect companies from unfair business
practices (such as false advertising, poor product packaging, cut – throat price practices)
protection of lager national interests of society against unhealthy business practices and
behavior .

 Judicial system as regards to procedures adopted by the courts in the administration of

justice and the enforcement of laws and regulation.

 Regulatory bodies with statutory powers delegated to them from the central government
such as environmental protection agency, food and during Administration agency, energy
Regulation Agency, motor vehicle and licensing boards etc.

c) National pressure and lobby groups

Such as Trade Associations, trade unions, consumer Rights Groups etc. for instance, Trade
Associations and Trade Unions have codes of practice which business must adhere to such
groups also have influence on policy decisions of the government and other regulatory agencies.

SOCIO – CULTURE ENVIRONMENT:

Culture may be defined as: -

 “The integrated sum total of learned behavioral traits that are manifest and shaped by
society’s members or “The sum total of mankind’s knowledge, beliefs, values, norms,
arts, laws, customs and other habits acquired by humans as members of society or ‘It is
the distinctive way of life of a group of people, their complete design of living”

The culture of a given society affects or defines its relationships with themselves, with others, to
nature and to the universe .Business revolves around culture i.e. market deals with people’s
culture and affects business in the following ways:

 Products must be culturally acceptable in terms of design and use by society.

 Promotional messages must be designed in the form and symbols recognized and
meaningful to the market (culture)

 And business activities are judged in a cultural context for acceptance or rejection
 Cultural forces are very dynamic and sometimes hard to predict and interacts with business
in different ways. These influences or forces include: - core cultural values, subcultures,
lifestyle expectations, attitudes and perceptions, tastes and references, personal ethics
,people’s relations to the environment, business ethics, social institutions, class structure,
people’s belief systems etc. Thus the socio –cultural element of the business environment
consists of

 Material culture i.e. technology and economics

 Social institutions i.e. social organization, education and political structures

 Beliefs systems, values, customs and attitudes

 Aesthetics i.e. arts, music, folklore, dance and drama.

 Language

a) Material culture

Technology – techniques in the creation of material goods and the technical – know how
of people in society

Economics – relates to the manner in which people employ their capabilities and the
resulting benefiting in the production, distribution, consumption and resumption of goods
and services.

Material culture affects the level of demand, quality of type of goods and services
demanded including their financial features. Business be done in the context of society’s
material culture otherwise it will fail.

b) Social institutions

i) Social organization – defines people’s social setting, their characteristics, roles and their
interpersonal relationships . It defines social positions and roles of members of society (men,
women and children, the family (both nucleus and extended), social class structures (e.g.
caste system, professional, upper and lower etc.

Each social institution affects business or marketing because of influences behavior, values and
the overall pattern of life. For instance, they provide standards and rules regarding consumption
patterns and life styles. Furthermore, the various social classes or strata provide the basis for
market segmentation and application of selective marketing mixes.

 ii ) The social institution of education affects the level of literacy, which in turn affects
business or marketing activities such as promotion. Education refers to both formal and
informal transmission of skills, ideas, attitudes and training in specialized fields.
 Education is used to teach acceptable behaviour to members of society . Education affects
business in areas such as: -

 Promotional programs such as advertising and labeling of products.

 Conducting marketing resource

 Complex product instructions.

 Relationships with other supplies and distribution.

iii) The political structures of society refer to the way in which members of a given society
organize their activities govern themselves in order to live in harmony e.g. clear systems, etc

 Society’s belief systems such as;(i) religion and superstitions relate to its value systems
and influences people’s outlook on life, habits, the products they buy, how they buy them
and even how they consume them.

 ii )Society’s superstitions for instance affect business activities to the extent that you
cannot do things deemed contrary to people’s culture (taboos)

 iii) People’s values and attitudes toward economic life/ activities such as the acquisition
of wealth or material gains (profit) affect business activities

 Religion, belief systems, and superstitions affects busier marketing activities in several
ways such as consumption patterns, religious festivals and holidays, economic roles of its
members (e.g. Moslem women), the role of church and the state etc

c) Aesthetics

Relate to people’s ideas in culture of beauty and good taste as manifested/ expressed in art,
music, drama, folklore and dance . They are important in business marketing in interpreting
symbolic meanings of various expressions, colour and standards of beauty in particular
culture

Business managers need to make correct interpretations of society’s aesthetic values and must be
reflected in product styling, design, packaging, names, advertising messages etc

Symbolism is permanent in nonverbal communications i.e. symbols have distinct meanings in

various cultures signifies peace while in Arabic and Islamic cultures, it signifies sorrow or death.

d) Language

Reflects the nature and values of society and is used to transmit ideas, values and in formal
training of mastery of language of the business environment is essential in successful operation.
It may require using locals or people who are fluent in the language for correct translations and
communications. Languages affect both media and nonverbal communications.

TECHNOLOGICAL ENVIRONMENT.:

 Technology is the sum of knowledge of the means and methods of performing activities
(or producing goods and services) . It encompasses knowledge, skills, techniques, tools,
equipment, machinery and production process.

 Technological environment refers to the state of scientific knowledge, production

processes, machine and support systems available in a country. Technology affects all
levels of business operations such as production, marketing, research and development,
communications and information system, personnel, finance and accounting systems.

 Technological changes or advances affect raw materials and components used in

production, the processes by which the products are produced, administration and
distribution systems, production marketing, interferes between organizations and
consumed, communication systems: -

1.Materials, components and products.

 Technology improves and increases the benefits that consumers derive from products.
Technological advances have created unlimited innovational opportunities on new
products and production processes in biotechnology, electronics and material science
such as e.g. chemical control of mental illness, happiness pills, solar energy, electrical
cars, contraception products & services, nutritional foods that are manifested and tasty
(such as low calorie sweeteners found in most food stuffs, drinks such as coca cola,
lemonades etc) are creating a new market segment among diet conscious consumers.
Other products include: -

a)Unleaded fuel (petrol)

 That has less exhaust fumes and has less impact on environmental pollution and health.
Unleaded fuel also improves engine performance of vehicles.

b)Synthetic fabrics (clothing materials)

 have also revolutionized the textile/ clothing industry .R&D has produced clothes that are
easy to wash and wear, non-fading etc

 c)Packaging- innovation of products using light weight plastics and gloss, recycled and
recyclable materials and cans are good examples of packaging innovation .This helps to
make products more appearing and keeping costs down .Developments in lamination and
printing techniques have increased the attractiveness and quality of packaging (or product
image)
2. Production processes/ methods:

 Technological advances have had an impact in transforming production processes that

have affected volume/ quantity & quality, cost and performance of production and
consequently greater customer satisfaction. Improvement in technology has influenced
production process and this has affected marketing (business) activities indirectly/
directly in the following ways: -

 i) CAD – computer Aided Design Systems: - that has revolutionized product formation
and testing, thus affecting the planning and design phases of many products

 I n terms of design, technology allows ideas to be vitalized, tested and quickly accepted
or rejected much more quickly than if paper plans were used.

 Simulation of how the proposed products will behave under real life conditions can be
done to highlight probable problem areas.

 Consequently, this advancement in technology allows products to get to the market much
more quickly and may be cheaper and more reliable.

ii) CAM – Computer Aided Manufacturing

Use of computer controlled robotics and mechanized systems to perform tasks much faster than
human operatives with greater consistency and accuracy. Customers benefit by getting more
reliable, consistent and potentially cheapest products.

iii) Quality Assurance and Control (QA&QC): -

 Technology has improved methods used for testing samples taken from the production
line and the capacity to defect faults during the production process .This benefits
customers through reduced costs and reliability of products, as fewer products will be
produced with faults. This also improves the reputation and relationship of the firm with
its customers

iv) JIT – JUST – IN –TIME PRODUCTION SYSTEM

 have improved the quality and reliability of materials entering into the production process
. Means supplies arrive at the right time in the right amounts to enter production process.

v) Material handling –

 through computerized planning models known as materials requirement planning (MRP)

This has improved efficiency in material handling minimizing wastage through time,
stock? Restock, transportation costs etc.
3) IT in storage systems: -

 The computerization of stock controls has had implications in storage requirements of

firms. It has made the implementation of JIT methods of stock control possible. This can
easily be seen in supermarkets where the use of bar- codes on products makes it possible
to carry out stock inventory (stock check) of a whole shop within a matter of hours and
restocking can be done simultaneously with involuntary stocktaking. Control of inventory
can be done at the point of sale using bar – codes

4) IT in distribution systems:

 Distribution systems used to taking and locating goods in and out of production systems,
use of integrated and dispute functions that ensure checking of goods availability.

 Computer handles all the paper work printing packaging slips, invoices and updating
customer orders using an inventory management system

 This speeds up the handling of customers orders and reduces labour involvement (labor
costs and errors.

 More so, retail chains can be linked to supplies of inventory to handle order and reorder
of stock.

 Telecommunications links also keep trade of the movement / flow of goods over various
sites and depots worldwide

5) IT administration: -

 computer systems facilitate record management and communications through the

Internet, email, fax miles, telephone system

6)Electronic funds (money) transfer :

Facilitate immediate payment for goods and services anywhere in the world (plastic money)
.The introduction of credit and debit cards allow money to be transferred immediately from
bank accounts to the buyers at the point of sale

7) Data processing

Has been computerized in such areas as database systems, payroll systems, accounting systems,
order-processing systems, inventory control system, marketing research using database systems
etc

8) Marketing communications
  has been facilitated by improvements in telecommunications such as the use of satellite
systems, computer network. These allow advertising media to use computer animation to
create effect on messages aided. On – line marketing between buyers and sellers allows
faster transaction .Sales force systems that allow the use of computers (laptops) to obtain
current customer and market information and immediately communicate it to sales
management.

DEMOGRAPHIC ENVIRONMENT:

 Demography is the study of population (human) characteristics (or statistics) i.e. structure
and profiles such as age, size, general race, birth rate, death rate, location, migrations
(mobility), marriage and divorce, religion, occupation, distribution, levels of education,
productivity, family and household structures etc.

 Business/ marketing activities are affected by people who are involved in the production
of goods and services and as consumers of products.

 The structures and profiles of the population such as size, age, distribution, mortality
rates and level of migrations generally influence the quality of people available for
production of products.

 Demographic variables /factors help marketers/ business managers to identify needs of

the target markets/ consumers so as to devise ways of satisfying such needs and wants i.e.
through targeting processes.

 Demographic trends / changes have significant marketing/ business strategy implications

shown below: -

a) Population growth

Increase in population presents both business opportunities and threats. It provides ready
market for products on one hand and on the other hand posses problems with the resource
depletion, pollution and a reduction in the quality of life (standards of living decrease
because of constraints on basics of life such as food, shelter, clothing, education etc

A decreasing population or birth rate

 is a threat to some industries and a boom to others. For instance, baby – oriented product
industries such as toys, clothes, functions and food are threatened by declining birthrate
while creating a booming business for industries serving the old or aging population such
as hotels, airlines, restaurants that may have plenty of income to spend.

Fluctuations/ declining death rate

 due to increase in life expectancy affects consumer markets quality. This creates a “grey
market “ or “aging population market” for people who have lots of income with less
financial responsibility e.g. leisure - oriented industries and retirement / elderly services
(retirement home and medial services, eye glasses, hearing aids.

 Marketers / business managers need to reposition their products or introduce new ones
to meet the changing needs of customers.

b) Family and household structures:

c) Changing family and household structures such as late managing, few children, higher
divorce rate, more working wives affect business decision by presenting both
opportunities and threats. For instance: -

d) Late or no marriages will slow down sales of engagement and wedding products such
as wedding rings, bridal outfits and life insurance

e) Fewer children slow down the demand for baby – oriented products such as toys, food
furniture and clothing plus childcare or maid services.

f) A higher divorce rate creates a large number of single parents who need additional
housing, furniture, appliances and other household goods.

g) More working wives provide a market for better clothing, home care services and
increase household family incomes that translates into greater demand higher – quality
products such as life insurance, travel and automobile services

h) Household structure /characteristics such as single adult, two- people cohabiters and
group households couch as religion groups and students living together, single – parents,
single and separated or divorces etc create special needs for household goods such as
furniture, appliances, food etc

i) There is need for more housing, transport and communication, greater variety of goods
and services and other social amenities .This means that business/ marketing strategy
much change to cope with the new trends in terms of their mm strategy (i.e. new
products, promotion, pricing and distribution).

d) Literacy level education

- affects business decisions in several ways such as quality of the workforce, increased
demand for better quality products for the better educated and white collar population (such
as library services, travel, secretarial services, home and personal services, protection
services.
 e) Ethnical and racial population – the ethnic and racial make up of the population
presents special target markets for a business firm. Each population group has special
needs and wants buying habits and businesses has to direct their products and
promotional manager to each group. Each ethnic group / region has its own ways of
thinking planning and living and the business / marketing manager has to pay attention to
such special characteristics .The rapidly disintegrating tribal ethics and racial barriers
present business opportunities and challenges that have to adapt to such trends.

f) Concerns all firms that satisfy the needs and desires of the organization’s target market(s)
or consumers . The marketer needs to identify who the competitors are, what they are
doing and predict what they might do in future. Competitive analysis encompasses both
current and potential competitors, as were as local, domestic and foreign competitors.

COMPETITITIVE ENVIRONMENT

The marketers responsibility is also to determine the nature of competition such as: -

I) Pure competition – those firms to deal with similar products and buyers and sellers
are free to enter and exit the market

ii) Monopolistic competition – situation where there are many sellers and each has a
relatively small market share.

iii) Oligopoly – deals with similar product but characterized by few sellers who control
most of the market

iv) Monopoly – business controlled by one firm who controls the production and sales of
goods and services.

The marketer / manager needs to evaluate the following competitive forces in the business
environment: -

 Rivalry among existing competitors: - involves determining existing competitors, their

strategies and weaknesses, their marketing strategies and their developing a superior
marketing mix strategy

 Threat of new entrants: - Involves determining possible entrants and any possible
barrier to entry into the business such as heavy capital requirements or special skills or
experience that may provide the advantage or reduced production / operating costs.

 Threat of substitute products: - Substitute products affect the prices of other goods and
services. For instance, the introduction of accounting and design software influence
hiring decisions of accounts or designer / craftsmen.
 Iv) Bargaining power of supplies and buyer: - Suppliers influence price and quality of
parts and / or raw materials. Thus the manager / marketer needs to determine the number
of supplies that control the market. May involve engaging in strategic moves such as
relationship marketing or joint ventures or partnerships. Buyers can force prices down,
bargain for higher quality or more services and set competitors against each other.