Business Environment

A Conceptual Framework
 Business Environment

• Meaning
• Importance
• Components/Determinants
 Meaning
• It means the sum total of all individuals, institutions
and other forces that are outside the control of a
business enterprise but that may affect its
performance.
• The economic, social, political, technological and other
forces which operate outside a business enterprise are
part of its environment.
• The individual consumers or competing enterprises as
well as the governments, consumer groups,
competitors, courts, media and other institutions
working outside an enterprise constitute its
environment.
Typology of Business Environment
A. Internal Environment –
•Organization Structure
•Firm Policy
•Organizational Resources –
Financial , Marketing, Human Resource, R&D,
Technological
•Organizational Culture
 Business Environment
B. External Environment
• Economic
• Socio-Cultural
• Legal
• Political
• Others
 Nature of Business Environment
1. Totality of External Forces
2. Specific and Generic Forces
Specific forces (customers, competitors and
suppliers) affect individual enterprises directly
and immediately in their day-to-day working.
General forces (such as social, political, legal
and technological conditions) affect the firm in
general.
 Nature of Business Environment

3. Interrelated - Increased life expectancy of people

and increased awareness for health care have
increased the demand for many health products
and services like diet Coke, fat-free.
4. Dynamic Nature
5. Uncertainty
6. Relativity
7. Complexity
 Importance of BE
A good understanding of environment -
1. It enables the firm to identify Opportunities
and getting the first mover advantage
2. It helps the firm to identify threats & early
warning signals
3. It helps in tapping useful resources
4. It helps in coping with rapid changes
5. Helps in Policy formulation
6. Helps in improving performance
 Components
• Economic Environment – Major Agents
• GDP & Per Capita Income;
• Economic Structure/System;
• Rates of Saving and Investment;
• Foreign trade situation
• Balance of payments and changes in Forex;
• Agricultural and industrial production trends;
• Expansion of transportation & communication facilities;
• Money supply in the economy;
• Public debt (internal and external);
• Planned outlay in private and public sectors
• Disposable Income
 Components of Economic Agents
• Economic System (Capitalist, Socialist & Mixed)
• Nature of Economy (Open/Closed)
• Structure of the economy (Household, corporate,
govt., financial market & Foreign trade)
• Economic Planning & program
• Economic trends
• Economic problems and prospects
• Economic controls and regulations
• Fiscal & Monetary Policy
 Socio-Cultural Environment
Major Agents –
• Attitudes towards product innovations,
• Lifestyles, occupational distribution,
• Consumer preferences,
• Concern with quality of life,
• Life expectancy,
• Expectations from the workforce,
• Shifts in the presence of women in the workforce,
• Change in population ,
• Educational system and literacy rates,
• Consumption habits,
• Composition of family
 Political Environment
Major Agents
• The Constitution of the country,
• Prevailing political system,
• The degree of politicization of business and economic issues,
• Dominant ideologies and values of major political parties,
• The profile of political leadership and thinking of political
personalities,
• The level of political morality,
• Political institutions like the government and allied agencies,
• Political ideology and practices of the ruling party,
• The extent and nature of government intervention in business,
• The nature of relationship of our country with foreign
countries
 Legal Environment
• It includes the various laws made by the
government eg.
• Company Law,
• FEMA,
• Factories Act,
• Trade Union Act,
• Workmen’s Compensation Act,
• Consumer Protection Act, Competition Act etc.
 Technological
• Major Agents –
• Factors relating to change in scientific and
technological improvements and innovation.
• SAP – IT enabled business system. System
audit, Computerized business operations etc.
Environment of Indian Airlines