3. • What is Business?
• Business Environment
• Elements of Business Environment
• Components of Business Environment
• Social Environment
I. Main aspects of social Environment
II. Any business is a part of the society in which it
operates.
• Legal Environment
I. Laws governing the functioning of Business.
II. Not obeying the rules can result in legal trouble
for the business.
• Economic Environment
I. Main aspects of Economic Environment
II. Growth is never by chance; it is the result of
forces working together
• Political Environment
I. Main aspects of Political Environment
II. Without political stability there is no
economic prosperity
• Technological Environment
I. Without political stability there is no
economic prosperity
• Impact of Government policy changes on
Business and Industry
4. A business is a legally
recognized organisation
designed to provide goods
and services to consumers
with the motive of earning
profits
oCircumstances, influences,
stresses, and competitive,
cultural, demographic,
economic, natural, political,
regulatory, and technological
factors that affect the
survival, operations and growth
of an organisation.
What is business Environment
5. According to Keith Davis, “ Business
Environment is the Aggregate of all
conditions events and influences that
surround and affect business.”
7. Components of Business Environment
Social
Environment
Legal
Environment
Economic
Environment
Political
Environment
Technological
Environment
International
Environment
8. Social environment implies
traditions, literacy rates,
educational levels, values,
customs, lifestyle,
demographic distribution and
other characteristics of the
society in which the
organization exists.
9. People’s attitudes towards new
products or improvements in old
products, job distribution.
Consumption habits of the
people.
Composition of family.
Life expectancies.
Quality of life.
System of education and
literacy rates.
Presence of women workers.
Shifts in populations
Birth and Death rates.
Expectations from the
workers.
10. “Any business is a part of the society in
which it operates. “
Culture and Traditions: In India, culture
and traditions influence a majority of
business. Traditions mean the social
practices that have passed down through
generations.
For example, during festivals, it is a
profitable period for electronics, sweets,
greeting cards and restaurant businesses.
The business should plan it’s strategies
according to the traditions and social
practices of a country.
Social Trends: Social trends in a
society are proportional to the
demand for the product. Such
example is health and fitness.
The products such as diet foods
and drinks, fitness centers have
given a new face to the industry of
health and fitness.
Values: Values can be called as the
standard society keeps about itself.
Such as freedom, social justice and
equal opportunities.
11. Legal environment consists of
rules and regulations, framed
by the Parliament, under
which business must operate.
To exist and grow, business
is required to follow all the
rules and regulations that
constitute this environment.
12. Indian contract act 1872
Indian partnership act 1932
Central excise act 1944
Industrial disputes act 1947
Minimum wages act 1948
Banking regulation act 1949
Indian companies act 1956
Foreign exchange management
act 1999
Right to information act 2005
Commission for protection of
child rights act 2005
MSMED act 2006
13. “Not obeying the rules can result in legal trouble
for the business.”
• Legal Environment includes different
laws passed by the government,
administrative orders issued by
government authorities, courts and
recommendation made by various
commissions agencies at three levels of
the government.
• It is very essential for the management
of any business firm to obey these rules
and regulations for smooth functioning of
the business.
• It’s important that every business
must function according to the law
of the area in which it wishes to
operate.
• For example, it is compulsory that
the Advertisement/Packaging of
Cigarettes should carry the
statutory warning that “Cigarette
is injurious to health”.
14. Economic environment
represents the nature
of economy, it’s policies,
systems and all those
forces that have a
bearing on the business
activity.
15. The role of public and private sectors in
the existing structure of the economy.
The rate of increase in GNP and per
capita income both at current and
constant prices.
Amount of exports and imports of
different products.
Increase in transportation and
communication facilities.
Trends in agricultural and industrial
production.
Amount of savings and investments.
Internal as well as external public debts.
Nature of money supply in the economy.
Planned outlay in private and public
sector.
Balance of payments and changes in
foreign exchange reserves.
16. “Growth is never by chance; it is the result
of forces working together”
The Rate of Inflation: The simplest way to
understand inflation is to see it as rising prices.
If the economy is in the state of boom. Where
business is flourishing and everyone is earning
good amount of money which results in the
increase in purchasing power of the consumer.
This means that producer is able to sell his
commodity at a high price in the market.
Whereas, in a state of depression in the
economy, the purchasing and investing power of
the customer falls down.
Interest Rates: Changes in the interest rates
greatly affect the demand for goods and
services. For example, low long term rates on
home loans are beneficial for banks and
consumers both.
Demand and Supply: When business identifies
a profitable opportunity they are observing the
existence of a potential demand for the
product. Demand and the supply and the
producer’s ability to produce of a commodity in
the market influence the business environment
enormously.
Economic Policies: Government seeks out to
control the business environment in order to
meet a range of objectives such as health and
safety. Economic policies are drafted to direct
the economic activities.
Economic Environment is fully regulated by RBI.
It influences the interest and has full control
over the flow of money in the economy.
17. Political Environment
consists of forces such as
political stability and peace
in the country and attitude
of the ruling party and its
representatives towards
business
18. Government’s attitude and the nature of intervention towards various industries.
Pressure by government and allied agencies.
Political parties and their policies.
Political ideologies and practices of ruling party.
Nature of ruling party and government.
Constitution of the country.
Nature of country’s relation with foreign countries, particularly neighbors.
The foresight of the ruling party and its perspective towards business.
Political peace and stability in the country.
19. “Without political stability there is no
economic prosperity”
Business functions within the nature and
framework of political environment.
Generally, governments’ policies change
with the change of guard in power.
Business is required to understand and
follow such changes and also respect the
orders that judiciary gives from time to
time.
Whenever there is political stability, it
increases the confidence of businessmen
whereas political instability, adversely
affects the business.
For example even after opening of our
economy in l991, many foreign companies
found it very difficult to enter the Indian
market because of ‘Bureaucratic Red
Tape’. As a result, many of these
companies got discouraged from doing
business in India.
As it decides what is the ideology of the
party which is dominant in the country.
For example, after globalisation India let
foreign companies enter Indian market
for giving a boost to different industries.
20. This is fully concerned with
changing of technology and its
effect on product.
Many technical products are
fastly changed by coming new
technology .
At that time business also have
to cover new products
according to changes in
technology .
21. “Just like two sides of the same coin, technological changes are
threats to some and opportunities for other.”
The introduction of Television was a major blow to the industry of
Radio and Cinema industry. Mobile phones have snatched the market
from Telephones.
These days, the online food delivery businesses are emerging in the
market which is using Smartphone technology that is ‘Apps’ to order
food online. This is a major change in the food industry business and
has affected the restaurant industry tremendously.
New innovations are occurring in medicine, telecommunications and
biotechnology. Recent advancement in the market of Autonomous
cars i.e. Driverless cars is proving to be a major threat to the
business of self-driving car industry.
22. “Just like two sides of the same coin, technological changes are
threats to some and opportunities for other.”
The forces related to scientific improvements and innovations for
improving quality of goods and services and new techniques for
operating the business, are part of technological environment.
It includes new approaches, new procedures and new equipments to
transform inputs into outputs. It facilitates an organization’s
efficiency and effectiveness so that it can try to remain at par with
the best in the world.
Similarly, the new technological changes in computers and Internet
have proved very useful to the business firms in advertising their
products, in having direct links with suppliers to replenish the stocks
when required, in having flexible manufacturing system etc.
23. Increasing Competition: De-licencing and entry of foreign firms Indian market is
increased the level of competition for Indian firms.
More Demanding Customers: Now customers are more aware and they keep maximum
information of the market as the result of which now market is customer/buyer
oriented, Now, products are produced keeping in mind the demands of the customers.
Rapid Changing Technological Environment: Rapid Technological advancement has
changed/improved the production process as a result of which maximum production is
possible at minimum cost but it leads to tough challenges in front of small firms.
Need for Developing Human Resources: The changing market conditions of today
requires people with higher competence and greater commitment, hence there is a
need for developing human resources which could increase their effectiveness and
efficiency.
24. Necessity for Change- After New Industrial. Policy the market forces (demand &
supply) are changing at a very fast rate. Change in the various components of business
environment has made it necessary for the business firms to modify their policies &
operations from time to time.
Market Orientation: Earlier selling concept was famous in the market now its place is
taken by the marketing concept. Today firms produce those goods & services which
are required by the customers. Marketing research, educational advertising, after
sales services have become more significant.
Reduction in budgetary Support to Public Sector: The budgetary support given by
the government to the public sector is reducing thus the public sector has to survive
and grow by utilising their own resources efficiently.
