BUSINESS AND ITS

ENVIRONMENT

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Business Environment and Its
Elements
 The business units need to adapt themselves
to these changes in order to survive and
compete in the market. Hence, it is necessary
to have a clear understanding of business
environment at the conceptual level and the
nature of its various components.

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Meaning of Business
Environment
 The term ‘business environment’ connotes
external forces, factors and institutions that
are beyond the control of the business but
affect the functioning of a business enterprise
to a significant level

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Importance of Business
Environment
1. Determines Opportunities and Threats

2. Gives Direction for Growth

3. Ensures Survival and Growth

4. Maintains Adaptability to Changes

5. Provides Firms with Continuous Learning

Opportunities

6. Helps in Image Building 1-4

Importance of Business
Environment
7. Prepares the Firm to Overcome Competition

8. Identifies the Firm’s Strengths and

Weaknesses

9. Keeps Business Enterprise Alert

10. Keeps Business Flexible and Dynamic

11. Develops the Understanding of Future

Problems and Prospects
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Importance of Business
Environment

12. Helps in Making Business Socially

Acceptable

13. Ensures Optimum Utilisation of Resources

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Features of Business
Environment
 Business environment is the surrounding
situation

 Business environment is complex

 Environment is dynamic

 Environment is multifaceted

 Environment has a long-term impact on

business
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Features of Business
Environment
 Environment entails in-depth study by
business firms

 Environment influences business firms

 Environment and business planning go

together

 Environment needs adaptability

 Business environment changes constantly

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Types of Business
Environment
 Internal environment

 External environment

 non-economic environment and

 economic environment.

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Economic Systems

 Every country in this world has an economic

system to facilitate the production, trade, and
consumption of goods. Countries across the
world have evolved through various
ideologies to follow a mix of different thoughts
and systems.

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Types of Economic Systems

1. Market economy or capitalism

2. Planned or command economy

3. Mixed economy

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Globalisation and Business
Environment
Globalisation is the term used to describe the
process of removal of restrictions on
foreign trade, investment, innovations in
communications, and transport systems.
Firms often go global as part of their
business strategy. This is mainly because
of three reasons:
(i) They get access to more markets and customers.
(ii) They can create better ‘brands’ by means of expansion so that
the acceptance at the
home market also increases.
(iii) There could be a saturation point in the domestic business1-12
 Driving factors of
Globalisation
 increased international trade
 growth of multinational corporations
 internationalisation of finance
 application of new technologies to these
operations, especially in IT
 Two macro factors seem to underlie the trend
towards greater globalisation. They are as
follows:
 decline in trade barriers to the free flow of goods, services,
and capital that has occurred since the end of world war
 technological changes, particularly the dramatic
developments that have occurred in recent years in
communications, information processing, and transportation
technologies
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Multinational Corporations
(MNCs): Benefits to the Host
Country
 The income level and the investment level
increases consequent to the entry of MNCs.
 The host country’s industry gets latest
technology from other countries through the
MNCs.
 The host county’s business firms and people
get to know about best international
management practices

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Multinational Corporations
(MNCs): Problems to the Host
Country
 Since MNCs are not operating within the
national territory, their operations affect the
sovereignty of the host country government.
 Small- and medium-scale domestic industries
find it difficult to compete with MNCs.
 MNCs, sometimes, withdraw their capital and
shut down their production units suddenly,
which in turn creates labour problems in the
host country.
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Global Capitalism

 Capitalism is often characterised by free

market forces, profit, and private property.
This economic system manifests itself in two
broad directions.
 First, it leads to the development of large-scale
multinational organisations.
 Second, it rationalises values, attitudes, and
behaviours with corporate goals and objectives to
make abnormal profit.

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