Business Environment

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Paper Name: Business Environment
Paper Code:201
Class: BBA(CAM)

Unit-1

What is Business Environment?
• Business environment includes the ‘climate’ or set of conditions: economic,
social, political or institutional which have a direct or indirect bearing on the
functioning of business
• It signifies external forces, factors and institutions that are beyond the control of
the business and they affect the functioning of a business enterprise.

Features of business environment
• Business environment is the sum total of all factors internal & external to
the business firm that greatly influence their functioning
• It covers factors and forces like customers, competitors, suppliers,
government, and the social, cultural, political, technological and legal
conditions.
• The changes in business environment are unpredictable.
• Business Environment differs from place to place, region to region and
country to country. Ex: Political conditions in India differ from those in
Pakistan. Taste and values cherished by people in India and China vary
considerably.

Nature
• AGGREGATIVE
• INTER RELATED
• RELATIVE
• INTER-TEMPORAL
• UNCERTAIN

Importance of business environment
Business environment is complicated and active in nature and has a far-
reaching impact on the survival and growth of the business.
• First Mover Advantage
• Giving Direction for Growth
• Continuous Learning
• Image Building
• Meeting Competition
• Identifying Firm’s Strength and Weakness: Business environment helps to
identify

Types of environment
Internal environment External environment
Micro environment Macro environment

Internal environment
 Important internal factors which have a bearing on the
decisions of a business firm and which are generally
controllable because the company has control over these
factors:
• Value system
• Vision, mission and objectives
• Management structure and nature
• Internal power relationship
• Human resources
• Company image
The internal environment is the environment that has a direct impact on the
business.

External environment
• Micro environment consists of the actors in the company’s immediate
environment that affect the performance of the company. They are more
intimately linked with the company.
• Macro environment consists of larger societal forces that affect all the
actors in the company’s micro environment.

Micro environment
• Suppliers
• Customers
• Competitors
• Marketing intermediaries
• Financiers
• Public

Macro environment
• Economic environment
• Political environment
• Technological environment
• Social environment
• Global environment

MEANING OF ENVIRONMENTAL ANALYSIS
• Environmental analysis is the process through which an organization
monitors and comprehends various environmental forces so as to determine
the opportunities and threats that lie ahead.
• This process is also known as Environmental Scanning or Environmental
Analysis.
• It has two broad aspects: environmental diagnosis or identifying
opportunities and threats.
• Environmental search or monitoring the environment.
• Environmental search leads to the identification of various forces that may
influence the enterprise.
• Environmental diagnosis judges these forces for their positive and negative
impact.

PROCESS OF ENVIRONMENTAL ANALYSIS
1. ENVIRONMENTAL SCANNING
• SCANNING MEANS THE PROCESS of analyzing the environment for
identifying the factors which may influence the business.
• Its main purpose is to identify the emerging trends or early warning
signals.
• There are so many environmental factors that influence the business but
all these factors may not be relevant for the enterprise.
• Therefore, critical and high priority factors must be identified.
• Example of factors are:
• Managerial philosophy
• Age,size,power
• Graphical dimmensions
• Type of the business organisation

2. ENVIRONMENTAL MONITORING
• Monitoring is a follow up and deeper analysis of relevant environmental
forces identified through scanning.
• Once the relevant factors are identified, adequate data about these factors
are gathered so as to ascertain emerging pattern and trends.
• Several techniques used to collect the relevant factors about environmental
factors are:
• Company records
• Publications
• Verbal talks with the employees, customers, dealers, suppliers and
competitiors.

3. Environmental forecasting
• Forecasting is the process of estimating the relevant future events based on
present and past behavior.
• It is necessary to anticipate future events before any strategic plans are
formulated.
• Therefore, forecasting is done for all the elements of external environment
including political, social, economic and technological etc.
• Techniques used for forecasting are:
• Delphi method
• Time Series analysis
• Econometric analysis

4. DIAGNOSIS(ASSESSMENT)
• Environmental factors are assessed in terms of their impact on the
organization.
• Some factors in the environment may entail an opportunity while others
may pose a threat to the organization. The degree of impact may vary
from one factor to another.
• Techniques used for environmental analysis:
1. SWOT ANALYSIS
2. ETOP ANALYSIS

IMPORTANCE OF ENVIRONMENTAL ANALYSIS
• Environmental analysis makes manager aware of the linkage between an
organization and its environment and keeps them alert and informed.
• It helps the company to identify the threats and opportunities before it.
• Through environmental analysis an organization can gain understanding of
how the industries environment is being transformed.
• With the help of environmental analysis the organization can know the
causes of disequilibrium.
• It is essential for the formulation of right strategies and for modification of
existing strategies as and when necessary.

LIMITATIONS OF ENVIRONMENTAL ANALYSIS
• BASED ON ASSUMPTIONS
• NOT ABSOLUTE TRUTH
• TIME CONSUMING AND EXPENSIVE

TECHNIQUES OF ENVIRONMENTAL ANALYSIS
• SWOT ANALYSIS
• ETOP

APPROACHES TO ENVIRONMENTAL ANALYSIS
• SYSTEMATIC APPROACH: Information is collected systematically and
regularly.
• ADHOC APPROACH: Under this special survey and studies understand
trends in environment from time to time.
• PROCESSED FORM APPROACH: The organization uses information in a
processed form available from various sources inside and outside the
organization.

ENVIRONMENTAL ANALYSIS AND STRATEGIC
MANAGEMENT
• Strategic management involves formulation, implementation, review and
control of strategies for achieving company’s objectives and mission.
• Strategies cannot be formulated without the thorough knowledge of the
company’s internal and external environment.
• Therefore, environmental analysis plays an important role in the process of
strategic management and consists of following five steps:

Strategies For Managing Diversity
• Training and education programs
• Organizational policies
• Outreach programs
• Career development programs

Unit-2

Economic Environment
The economic environment consists of external factors in a business market
and the broader economy that can influence a business. ... Macroeconomic
influences are broad economic factors that either directly or indirectly
affect the entire economy and all of its participants, including
your business.

Economic Factors Affecting Business Environment
• Demand and Supply
• Marginal and Total Utility
• Money Banking
• Income and Employment
• Economic Growth and Development
• Price Level
• Trade Cycle
• Inflation
• Recession

Economic System
An economic system is a system of production, resource
allocation and distribution of goods and services within a society or a
given geographic area. It includes the combination of the
various institutions, agencies, entities, decision-making processes and
patterns of consumption that comprise the economic structure of a given
community.

Types Of Economic System
• Capitalist Economy
• Socialist Economy
• Mixed Economy

Capitalist Economy
Capitalist Economy is an economic system in which capital goods are
owned by private individuals or businesses. The production of goods and
services is based on supply and demand in the general market
(market economy), rather than through central planning
(planned economy or command economy).

Socialist Economy
A socialist economic system is characterized by social ownership and
operation of the means of production that may take the form of autonomous
cooperatives or direct public ownership wherein production is carried out
directly for use.

Mixed Economy
Mixed Economy is an economy which contain a perfectly even mix of
capitalist and socialist economy. Mixed economies are usually noted as
being skewed towards either private ownership or public ownership,
toward capitalism or socialism, or toward a market economy or
command economy in varying degrees.

Economic System In India
• The economy of India is a developing mixed economy. It is the
world's seventh-largest economy by nominal GDP and the third-
largest by purchasing power parity (PPP).
• The country ranks 139th in per capita GDP (nominal) with $2,134 and
122nd in per capita GDP (PPP) with $7,783 as of 2018. After 1991
economic liberalization, India achieved 6-7% average GDP growth
annually.
• In FY 2015 and 2018 India's economy became the world's fastest
growing major economy, surpassing China.

Economic Planning In India
• Economic Planning is a term used to describe the long term plans of
government to co-ordinate and develop the economy with efficient use of
resources. Economic planning in India was stared in 1950 after
independence, it was deemed necessary for economic development and
growth of the nation.
• The idea of Five year planning was taken from the erstwhile Soviet
Union under socialist influence of first Prime Minister Jawahar lal Nehru.

Industrial Policy, 1991
The New Industrial Policy of 1991 comes at the center of economic reforms
that launched during the early 1990s. All the later reform measures were
derived out of the new industrial policy. The Policy has brought
comprehensive changes in economic regulation in the country. As the name
suggests, these reform measures were made in different areas related to the
industrial sector.

Objective of Industrial Policy 1991
• Liberalizing the industry from the regulatory devices such as licenses and
controls.
• Enhancing support to the small scale sector.
• Increasing competitiveness of industries for the benefit of the common
man.
• Ensuring running of public enterprises on business lines and thus cutting
their losses.
• Providing more incentives for industrialization of the backward areas, and
• Ensuring rapid industrial development in a competitive environment.

Foreign Exchange
Foreign exchange is the system or process of converting one national
currency into another, and of transferring money from one country to
another.
Foreign Currency
Foreign currency means any currency other than Indian currency.

Foreign Security
Foreign security means any security, in the form of shares, stocks, bonds,
debentures or any other instrumental denominated or expressed in foreign
currency and includes securities expressed in foreign currency but where
redemption or any form of return such as interest or dividends is payable in
Indian currency.

FERA TO FEMA
• The main objective of FERA framed against the background of severe
foreign exchange problem and controlled economic regime , was
conservation and proper utilization of the foreign exchange resources of the
country.
• FERA created flourishing black market in foreign exchange. It brought into
the economic lexicon the word “HAWALA”.
• There was a demand for a substantial modification of FERA in the light of
ongoing Economic liberalization and improving foreign exchange reserves
position. Accordingly, a new act ,FEMA( Foreign Exchange Management
Act ) 1999 replaced the FERA.

Need for FEMA
The demand for new legislation was basically on two main counts
• The FERA was introduced in 1974 when India’s foreign exchange reserves
position was not satisfactory. It required stringent controls to conserve
foreign exchange and to utilize in the best interest of the country. Very strict
restrictions have outlived their utility in the current changed scenario.
• There was a need to remove the draconian provisions of FERA and have a
forward-looking legislation covering foreign exchange matters.

Similarities between FERA and FEMA
• The RBI and central government would continue to be the regulatory
bodies.
• Presumption of extra territorial jurisdiction as envisaged in section (1) of
FERA has been retained.
• The Directorate of Enforcement continues to be the agency for enforcement
of the provisions of the law such as conducting search and seizure.

Unit-3

Culture
Culture is the coherent, learned, shared view of a group of people about life’s
concerns that ranks what is important, furnishes attitudes about what things
are appropriate, and dictates behavior.
Culture is therefore:
• A shared system of meanings.
• Relative.
• Learned.
• About Groups.

Impact Of Culture On Business Relations
• Impact on Relationships with Overseas Clients.
• Impact on Relationships with Customers.
• Impact on Relationships with Employees.
• Impact on Relationships with Partners.

Cultural Globalization
• Cultural globalization refers to the transmission of ideas, meanings,
and values around the world.
• This process is marked by the common consumption of cultures that have
been diffused by the Internet, popular culture media, and international
travel.
• The circulation of cultures enables individuals to partake in extended social
relations that cross national and regional borders.
• It involves the formation of shared norms and knowledge with which
people associate their individual and collective cultural identities. It brings
increasing interconnectedness among different populations and cultures.

Social Responsibility Of Businesses
Social responsibility of business refers to the obligation of business
enterprises to adopt policies and plans of actions that are desirable in terms
of the expectation, values and interest of the society. It ensures that the
interests of different groups of the public are not adversely affected by the
decisions and policies of the business.

Social Responsibilities Toward Different Groups
• Responsibility towards the shareholders or owners.
• Responsibility towards the Employees.
• Responsibility towards the Consumers.
• Responsibility towards the Government.
• Responsibility towards the Community.

Social Audit
A social audit is a formal review of a company's endeavors in social
responsibility. A social audit looks at factors such as a company's record of
charitable giving, volunteer activity, energy use, transparency, work
environment, and worker pay and benefits, to evaluate what kind of social
and environmental impact a company is having in the locations where it
operates.

Business Ethics
The word ‘Ethics’ originated from the Greek word ‘ethos’ meaning:
• Character,
• Conduct, and
• activities of the people based on moral principles.
It is concerned with what is right and what is wrong in human behavior on
the basis of standard behavior or conduct accepted by the society. Honesty,
truthfulness, compassion, sympathy, feeling of brotherhood etc. are
considered ethical.
Ethics from business point of view or business ethics are the moral
principles, which guide the behavior of businessmen or business activities
in relation to the society. It provides certain code of conduct to carry on the
business in a morally justified manner.

Corporate Governance
• Corporate governance is the mechanisms, processes and relations by
which corporations are controlled and directed.
• Governance structures and principles identify the distribution of rights and
responsibilities among different participants in the corporation (such as the
board of directors, managers, shareholders, creditors, auditors, regulators,
and other stakeholders) and includes the rules and procedures for making
decisions in corporate affairs.
• Governance mechanisms include monitoring the actions, policies, practices,
and decisions of corporations, their agents, and affected stakeholders.

Political Environment
This includes the political system, the government policies and attitude
towards the business community and the unionism. All these aspects have a
bearing on the strategies adopted by the business firms.
Political factors which have impact on business.
• The stability of the government also influences business and related
activities to a great extent. It sends a signal of strength, confidence to
various interest groups and investors.
• Ideology of the political party also influences the business organization and
its operations.
• The trade union activities also influence the operation of business
enterprises and most of the labor unions in India are affiliated to various
political parties. Strikes, lockouts and labor disputes etc. also adversely
affect the business operations.

Legal Environment
This refers to set of laws, regulations, which influence the business
organisations and their operations. Every business organisation has to obey,
and work within the framework of the law.
Legal factors in a business environment include: government regulations,
contracts and agreements with business partners and employee labor laws.

The important legislations that concern the business enterprises include:
(i) Companies Act, 1956
(ii) Foreign Exchange Management Act, 1999
(iii) The Factories Act, 1948
(iv) Industrial Disputes Act, 1972
(v) Payment of Gratuity Act, 1972
(vi) Industries (Development and Regulation) Act, 1951
(vii) Prevention of Food Adulteration Act, 1954
(viii) Essential Commodities Act, 2002
(ix) The Standards of Weights and Measures Act, 1956
(x) Monopolies and Restrictive Trade Practices Act, 1969
(xi) Trade Marks Act, 1999
(xii) Bureau of Indian Standards Act, 1986
(xiii) Consumer Protection Act, 1986
(xiv) Environment Protection Act
(xv) Competition Act, 2002

Besides, the above legislations, the following are also form part of the legal
environment of Business:
(i) Provisions of the Constitution: The provisions of the Articles of the Indian
Constitution, particularly directive principles, rights and duties of citizens,
legislative powers of the central and state government also influence the
operation of business enterprises.
(ii) Judicial Decisions: The judiciary has to ensure that the legislature and the
government function in the interest of the public and act within the
boundaries of the constitution. The various judgments given by the court in
different matters relating to trade and industry also influence the business
activities.

Rational & Extent of State Intervention
1. Minimal Functions:-
• Providing pure public goods.
• Defense.
• Law and order.
• Property rights.
• Public health.
• Protecting the poor.
• Disaster relief.

Rational & Extent of State Intervention (Contd.)
2. Intermediate Functions:-
• Addressing externalities.
• Basic education.
• Environmental protection.
• Consumer protection.
• Insurance (health, life, pensions)
• Unemployment.
3. Activist Functions:-
• Coordinating private activities.
• Cluster initiatives.
• Assets redistribution.

Unit-4

Natural Environment
The natural environment includes geographical and ecological factors that
influence the business operations. These factors include the availability of:-
• natural resources,
• weather and climatic condition,
• location aspect,
• topographical factors, etc.

Impact of Natural Environment
• Business is greatly influenced by the nature of natural environment. For
example, sugar factories are set up only at those places where sugarcane
can be grown.
• It is always considered better to establish manufacturing unit near the
sources of input.
• Government’s policies to maintain ecological balance, conservation of
natural resources etc. put additional responsibility on the business sector.

Technological Environment
• Technological environment include the methods, techniques and
approaches adopted for production of goods and services and its
distribution. The varying technological environments of different countries
affect the designing of products.
• In the modern competitive age, the pace of technological changes is very
fast. Hence, in order to survive and grow in the market, a business has to
adopt the technological changes from time to time.

Innovation
Innovation can be defined simply as a "new idea, device or method".
However, innovation is often also viewed as the application of
better solutions that meet new requirements, unarticulated needs, or
existing market needs.
Innovation takes place through the provision of more effective products,
processes, services, technologies, or business models that are made
available to markets, government and society.

Technology Leadership
• Three components:
– Assessment
– Forecasting
– Management
– Transfer
• A technological leader fosters technological innovation, and understands
the technology life cycle.
• Such a leader initiates and steers commercialization of technological
advances, links business and technology strategies, manages technology
R&D and understands technological revolutions.

Technology Management Components
• Technology Management
– Developing and using appropriate technologies
– To lead the technology, employ it in the best way, and to profit from
technology use.
• Technology Transfer
– Helping others learn the benefits and uses of appropriate technologies
– Making technologies available to others

Status of Technological Environment or Technology in India
After Independence, India had basic problems like poverty , unemployment and
development of India . Indian Govt. has taken many following steps for
technological development :- .
.

1. Establishment of technological and research institute
Indian govt. has established 500 technological institutes for providing
education to Indian students. It has also established 1080 research institutes.
In these institutes major names like space research centre, medical research
centre and agricultural research centre have developed India technically.
2. Positive Technical policy
India has strong and positive technical policy for technological development.
This policy opens door to import technology from foreign countries for
increasing agricultural and industrial developments.

3. High Growth Rate of Information Technology in India
In India, IT sector is developing with 35% growth rate, India is second
country after China who is using internet at large scale for e-commerce
, e-education and e-accounting.
4. Incentive for promoting Technology in India
Indian Govt. has given 100% income tax exemption for expenses
incurred in research of technology in India. State financial corporation
is uplifting domestic technology by supporting finance to domestic
Industries.

Demographic Environment
• The importance of demographic factors to business is clear from the facts
that “Management is men” & “Market is people.”
• Management in Men, Material, Machinery and Money.
• Market is people in the sense that the demand depends on the people and
their characteristics – the number, income levels, tastes and preferences,
beliefs, attitudes and sentiments.

Demographic Environment(Contd.)
• Demographic factors such as size of population, growth rate, age composition,
ethnic, density of population, rural – urban distribution, nature of family have
very significant implication for business
• Important demographic bases of market segmentation include the following:
1.Age structure
2.Gender
3.Income distribution
4.Family size
5.Occupation
6.Education
7.Social class
8.Religion
9.Race
10.Nationality

THANK YOU

Business Environment

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