BUSINESS
ENVIRONMENT
CHAPTER-3
VIDEO PRESENTATION
VIDEO PRESENTATION
Q. What is meant by business environment?
● The term ‘business environment’ means the sum total of all
○ individuals (consumers ,suppliers,competitors etc.),
○ institutions (court,media etc.) and
○ other forces (LSTEP-legal,social,technological,economic
& political) that are outside the control of a business
enterprise but that may affect its performance.
Q. What is meant by business environment?
– “Just take the universe,
subtract from it the subset that
represents the organisation, and
the remainder is environment”.
Q. Discuss the features of business environment.
(i) Totality of external forces:
● Business environment is the sum total of all things external to business firms
and, as such, is aggregative in nature.
(ii) Specific and general forces:
● Specific forces (such as investors, 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)
have impact on all business enterprises and thus may affect an individual firm
only indirectly.
(iii) Inter-relatedness:
● Different elements or parts of business environment are closely interrelated.
● For example, increased life expectancy of people and increased awareness for
health care have increased the demand for many health products and services like
soft drinks, fat-free cooking oil, and health resorts. New health products and
services have in turn changed people’s lifestyles
(iv) Dynamic nature:
● Business environment is dynamic in that it keeps on changing whether in terms of
technological improvement, shifts in consumer preferences or entry of new
competition in the market.
(v) Uncertainty:
● Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too frequently
as in the case of information technology or fashion industries.
(vi ) Complexity:
● Since business environment consists of numerous interrelated and dynamic
conditions or forces which arise from different sources, it becomes difficult
to comprehend at once what exactly constitutes a given environment.
● The complex environment can be more easily understood in parts rather
than in its totality
vii) Relativity:
● Business environment is a relative concept since it differs from country to
country and even region to region.
● eg. demand for sarees may be fairly high in India whereas it may be almost
non-existent in France.
● Political conditions may also vary from country to country
Q. Explain the importance of business environment.
A good understanding of environment by business managers enables
them not only to identify and evaluate, but also to react to the forces
external to their firms.
(i) It enables the firm to identify opportunities and getting the first mover advantage:
● Opportunities refer to the positive external trends or changes that will help a
firm to improve its performance.
● Early identification of opportunities helps an enterprise to be the first to exploit
them instead of losing them to competitors.
● For example, Maruti Udyog became the leader in the small car market because
it was the first to recognise the need for small cars in an environment of rising
petroleum prices and a large middle class population in India.
(ii) It helps the firm to identify threats and early warning signals:
● Threats refer to the negative external environment trends and changes that
will hinder a firm’s performance.
● Environmental awareness can help managers to identify various threats on
time and serve as an early warning signal.
● For example, if an Indian firm finds that a foreign multinational is entering
the Indian market with new substitutes, it should act as a warning signal. On
the basis of this information, the firms can prepare themselves to meet the
threat by adopting such measures as improving the quality of the product,
reducing cost of the production, engaging in aggressive advertising, and so
on.
(iii) It helps in tapping useful resources:
● Environment is a source of various resources for running a business like
finance, machines, raw materials, power and water, labour, etc.
● The business enterprise supplies the environment with its outputs such as
goods and services for customers, payment of taxes to government, return
on financial investment to investors and so on.
● Because the enterprise depends on the environment as a source of inputs or
resources and as an outlet for outputs, it only makes sense that the
enterprise designs policies that allow it to get the resources that it needs so
that it can convert those resources into outputs that the environment
desires.
● This can be done better by understanding what the environment has to offer.
(iv) It helps in coping with rapid changes:
● Today’s business environment is getting increasingly dynamic where changes are
taking place at a fast pace.
● Turbulent market conditions, less brand loyalty, divisions and subdivisions
(fragmentation) of markets, more demanding customers, rapid changes in
technology and intense global competition are just a few of the images used to
describe today’s business environment.
● In order to effectively cope with these significant changes, managers must
understand and examine the environment and develop suitable courses of action.
(v) It helps in assisting in planning and policy formulation:
● Since environment is a source of both opportunities and threats for a business
enterprise, its understanding and analysis can be the basis for deciding the future
course of action (planning) and guidelines for decision making (policy).
● For instance, entry of new players in the market, which means more competition
may make an enterprise think afresh about how to deal with the situation.
(vi) It helps in improving performance:
● Many studies reveal that the future of an enterprise is closely bound up with
what is happening in the environment.
● The enterprises that continuously monitor their environment and adopt
suitable business practices are the ones which not only improve their
present performance but also continue to succeed in the market for a longer
period.