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An Overview of Business

Environment
Business Environment
Business environment means all of the
internal and external factors that affect
how the company functions including
employees, customers, management,
supply and demand and business
regulations.
Internal Business Environment
Internal Business Environment is the set of
elements or forces which affects a
organization's or firm’s behavior.
Examples are like personnel, finance,
marketing, production, operational research
and so on.
External business environment

External Business environment is a set


of political, economic, social and
technological (PEST) forces that are
largely outside the control and
influence of a business, and that can
potentially have both a positive and a
negative impact on the business.
MICRO
ENVIRONMENT
Micro environment is the environment
that an organization can influence. It
may not be able to correct all flaws in
the microenvironment, but it has a much
better control over the macro
environment.
I. Micro environment of business.
1) Suppliers
Supply raw materials and other components
(Inputs)
2) Customers
Different categories of customers
i.Industrial customers
ii.Wholesale customers
iii.Retail customers
iv.Government customers
v.Foreign customers
3) Market intermediaries
i. Middlemen.
ii. Physical distribution Firms: (warehouses
and transport firms)
iii. Marketing service agencies (Advertising
agencies market research firms, media
firms, consulting firms)
iv. Financial intermediaries
4. Competitors:

The Threat of entry of new firms


The Power of Buyers
The Power of Suppliers
The Power of Substitutes
The Intensity of Rivalry among existing firms
MACRO
ENVIRONMENT
Macro Environment are major
external and uncontrollable factors that
influence an organization's decision
making, and affect its performance and
strategies.
These factors include :-

•Sociological Factors
•Political Factors
•Legal Factors
•Educational Factors
•Technological Factors
•Economical Factors
•Natural Factors
•Historical Factors
SOCIOLOGICAL FACTORS

It concerns with society as a whole; it covers health, media,


education, minorities, women, organized labour , legal system and
demographics.
The biggest challenge to firms is the society's changing
demands.

POLITICAL FACTORS

Political environment gives shape to business. Political


stability, Government administration, Philosophy of the political
parties are some of political factor which affects the business
environment
LEGAL FACTORS

Legal Environment has a permanent and lasting impact in


shaping business .
Labour law act, Industrial dispute act, Minimum wages act, Law
of contract, Import & Export control act and tax law act are few
legal factors.

EDUCATIONAL FACTORS

Educational cum cultural environment affects business activities


and managerial skills.
These factors include literacy, attitude toward training and skill
required for a business like specialized, vocational and technical
training

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TECHNOLOGICAL FACTORS

Technology is about application of tools, methods and techniques


to improve production and processes. Technology is life for
growth and competitiveness of Business.

ECONOMIC ENVIRONMENT

Economic environment conditions such as business cycle,


unemployment, Inflation, monitory policies, Industrial policies,
trade policies etc also affects the business environment.
NATURAL & ECOLOGICAL FACTORS

Use of modern technology sometimes involves


huge social cost in term of deterioration of
environmental pollution and ecological balance. So
business environment should also consider about
natural resources, weather & climatic conditions, health
hazards etc.

HISTORICAL FACTORS

Business Environment is also affected by


historical factors. Business environment in a number of
newly independent countries has been determined by
their past colonial status.
ENVIRONMENTAL
ANALYSIS
Process of environmental
analysis
• Environmental scanning
• Environmental monitoring
• Environmental forecasting
• Diagnosis (assessment)
Importance of environmental
analysis
• Helpful to managers
• Helps in identifying threats and
opportunities
• Helps in eliminating unsuitable alternatives
• Helps in making strategies
Limitations of environmental
analysis
• Based on assumptions
• Not absolute truth
• Time consuming and expensive
Techniques of Environmental
analysis
• SWOT Analysis

• ETOP Analysis
Environmental Analysis and Strategic Management

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