INTRODUCTION TO

BUSINESS ENVIRONMENT
Mrs. Shruti Vinay
Kachvimath
 Meaning & Definition:
 Business: Business can be defined as an association involved in
the trading of goods and services to customers with the intention
of earning profits. It is also known as a firm or enterprise. For a
capitalistic economy, business is the core factor.

 Majority of businesses are owned and managed privately. Such

privately owned businesses work for profit maximization and
wealth accumulation for their owners. Several public or not-for-
profit businesses are also functional.

 One can define business as a process, where an individual is busy

in certain activities (like production, buying, selling, distribution,
marketing, etc.) so as to make his/her livelihood along with
earning a reasonable profit.
 Nature of Business:
 Business is a Social Institution
 Dealings in Goods & Services
 Sale. Transfer or exchange
 Regularity in dealings
 Organisation & Management
 Risk –Taking
 Involves forecasting
 Surplus generation
 Profit motive
 Mutual benefit
 Scope of Business:
 Industry:

 Consumer Goods
 Capital Goods
 Intermediate Goods

 Commerce
Business Environment:
(Refer Textbook)
 COMPONENTS/FACTORS AFFECTING BUSINESS
ENVIRONMENT:

 Business environment can be broadly divided

into:

 Internal Environment

 External Environment
 Microenvironment
 Macro environment
 INTERNAL ENVIRONMENT:
 Environment that has direct influence on the
business is termed as internal environment. The
internal factors which influence the business
environment are controllable in nature.
 Value system
 Mission & Vision & objectives
 Management structure and nature
 Internal power relationships
 Human resource
 Company image & Brand equity
 Miscellaneous factors: Physical assets & facilities,
R&D, Marketing resources, Financial factors.
External Environment:
 Micro environment indicators: They are the
factors which directly influence the
performance of the company.

 Customers
 Suppliers
 Marketing Intermediaries
 Competitors
 General public
External Environment:
 Macro Environment Indicators: The factors which
are not immediate environment to the
organisation constitutes to form Macro
environment. These factors are external to the
organisation and are uncontrollable in nature.

 Political environment
 Legal environment
 Social environment
 Technological environment
 Cultural environment
 Economic environment
 Demographic environment
 Natural environment
Political Environment
 Political forces affecting business:
 Government laws
 National defense posture
 Foreign Policy
 Political stability
 Political Organisation
 Impact of Political Environment
on Decision-Making in business
 Political Ideology of government
 Political stability in the country
 Relation of govt. with other countries
 Cordial centre-state relations
 Thinking of opposition parties towards
business
 Policies towards international
Business/MNCs
 Govt. control and restrictions
 Treatments of Foreign investors
 Cultural Environment:
The cultural environment refers to those social factors which
impact the business and exist beyond the boundaries of the
organisation. Such environment includes factors like
individuals attitude towards their work, wealth, family values,
marriage norms, education, ethical norms, etc. These factors
combine to form cultural environment. All the values that are
socially learned and shared by the members of a society form
the culture. It is composed of two types of components, i.e.,
material and non-material. Material components include the
type of dresses, locality, infrastructure, etc.

The non-material components of culture are customs, beliefs,

ideas, habits, etc. of the individuals. This means that culture
is the reflection of society's personality and hence, it is very
difficult to limit culture to a predefined boundary.
 Components of Culture:

Components of
Culture

Education Social
Attitudes and Religion organisation
Language
Values
 Social Environment

Social factors
affecting business
operations

Family Educational Religion

Institutions
Impact of Social Environment on
Decision Making in Business:
 Persistence of Cultural Values
 Influence of Other People
 Changing Preference
 People’s Orientation towards society
 Education and Language
Demographic Environment:
Components of Demographic Environment:
 Age and Life-cycle stage
 Gender and sexual orientation
 Marital Status
 Income
 Social class
 Family size
 Occupation
 Educational Level
 Religion
Demographic factors affecting business:
 Increase in Production
 Income influence
 Supply of labour and economic development
 Age variables
 Population as a capital formation sources
 Geographic region
 Obtaining demographic information
 Ethnic background
 Environmental Analysis:
 There are numerous factors that affect the organisation
and its operations. These factors can influence the
organisation in both positive as well as negative ways. In
order to identify the factors in external environment, an
appraisal process of the industry's environment is
necessary.

 Environmental analysis or appraisal facilitates the

managers with the ability to study the competitive
structure and competitive position of the organisation
along with the position of its competitors. By analyzing
and appraising the external environment, the existing
opportunities and threats can be identified. It is the
responsibility of the managers to avoid the threats and to
read the benefits from the opportunities in the market.
Environmental analysis also helps the managers in
analyzing the effects of globalization on the level of
competition within a particular industry.
Process of Environmental
Analysis:

Understand nature of environment

Analyze the past influences of environmental

factors

Identify critical competitive forces

Analyze the strategic position

Identify the opportunities and threats

Techniques of Environmental Analysis
 ETOP Analysis
 QUEST Analysis
 SWOT Analysis
 PEST Analysis
 ETOP Analysis/Preparing an environment
threat and opportunity profile:
Environmental Threats and Opportunities Profile (ETOP) is a technique used to
structure the issues of environment. This technique was given by W.F. Glueck.

The TOP categorizes different environmental issues in various sectors which in turn
helps the management to focus their attention towards specific areas. It helps in
identifying the potential factors that influence the organisation. Diagnosing the
external environment closely is very essential as it points out the opportunities and
threats. While some of the factors create suitable circumstances, other factors
impose threats. ETOP facilitates an in-depth analysis of environmental factors that
allows the organisations to identify the potential opportunities and threats.

This results in more efficient strategic planning. An opportunity can be defined as a

favorable situation that provides prospects for a business to grow and expand and
make profits as well. For example, an untapped market, an unaddressed potential
need of customers, new technology, etc.

Constraints are those factors that limit the ability to grow and reduce sales and
profit potential. A threat can be defined as an unfavorable situation that restraints
the growth and profits of an organisation. For example, new entrants, availability of
substitutes at low cost, etc.
 QUEST (Quick environmental scanning
techniques) Analysis:

Process of QUEST:

 Preparation for QUEST

 Analyze the environment
 Document the discussion in a report
 Discuss the report
SWOT (Strength, Weakness, Opportunity
and Threat) analysis:
1. Internal Factors:
1. Strengths
2. Weakness

2. External Factors:
1. Opportunities
2. Threats
 PESTEL (Political, Economic, Social,
Technological, Environmental & Legal) analysis:

 PoliticalFactors
 Economic Factors
 Social Factors
 Technological factors
 Factors affecting environmental
analysis:
 Customer Environment
 Competitive Environment
 Industry Environment
 Macro Environment

Importance of environmental analysis:

 Predicts the Opportunities
 Warns against threats
 Recognizes Environment Risks
 Identifies Opportunities
 Provides more time for routine activities
 Identifies opportunities
 Provides more time for routine activities
 Identifies new growth avenues
 Continuous learning
 Builds the image of organisation
 Analyses the competitors
 Competitive Environment:
The dynamic setup in which any organisation competes in called
competitive environment or market structure. The flexibility of any
firm is regulated by the state of the systems.

Direct competitors of a firm can be considered as the most

relevant and simple example of factors under a competitive
environment. Whereas indirect competitors, regulatory sources,
technological and social changes can be seen as other examples.

Elements of Competitive Environment:

 Regulatory Elements
 Direct Competitors
 Indirect Competitors
 Differentiation
 Technology
Competitive Structure Analysis/Michael
Porter’s five forces analysis:
 Competitive Strategies
Lower cost Differentiation
Target
Broad

Cost Leadership Differentiation

Narrow
Target

Cost Focus Focused Differentiation

Process of competitive analysis in
business:
 Defining competitors
 Evaluation of Competitor’s strengths and Weaknesses
 Evaluating internal strengths and weaknesses
 Analysis of customer needs and wants
 Analysis of barriers to the market
 Building strategic plans to improve marketplace
position
 Challenges to competitiveness of
Business:

 Aligning to Global standards

 Operations
 Response time to market stimulus
 Logistical cost
 Customer acceptance
 Creating global marks
 Leadership
 Market understanding & Branding
 Less experience of international markets, Customers
and suppliers
Thank You