Elements of Buisness Enviroment

1. Elements of
Buisness
Enviroment
Assignment-1
BuisnessEnviromentconsistof all the internal/externalfactorsthathave bearing
on the buisness.
2015
Kirti Khade-11104027
PEC Universityof Technology
2/7/2015

3. Concept
Business environment can be defined as “the forces, factors and institutions with which the
businessman has to deal with to achieve its objectives”. Business environment is a combination
of the words business-environment. Business includes all activities connected with production,
trade, banking, insurance, finance, energy, advertising, packaging and numerous other related
activities. Environment refers to all external forces, which have a bearing on the functioning of
business. The environment includes factors outside the firm which can lead to opportunities for
or threats to the firm. Although there are many factors, the most important of these factors are
socio-economic, technological, supplier, competitors and government.
…..
Business is a very complex process. It does not operate in a vacuum. Environment is the macro
setup within which the business firm operates. The term ‘business environment’ denotes the total
surrounding, having various opportunities and constraints for business and have direct or indirect
bearing on its functioning or in other words it can be stated that it refers to the aggregate of all
forces and institutions which are external to business and beyond the control of management.
Definitions of Business Environment According to Bayard O Wheeler, business environment
refers to “The total of all things external to firms and industries, which affect their organisation
and operation”. Keith Davis, defines business environment in his famous book “The challenges
of Business” as “Business environment is the aggregate of all conditions, events and influences
that surround and affect it.” According to Arthur M Weimer, “Business environment

4. encompasses the climate or set of conditions, economic, social, political or institutional in which
business operations are conducted”.
“Business enterprise operates in an open system and has a continuous interaction with
environmental forces like customers, suppliers, competitors, government policy, etc. They
should adjust themself with the changing needs of the business environment.”
……
In general words we can say business environment is the surroundings in which business
exists.The complete awareness and understanding of business environment is known as
Environment Scanning. It is conducted to find out the influence of different factors and persons
on the business transactions.Environment scanning can be defined as a process by which
organisations monitor their relevant environment to identify opportunities and threats affecting
their business.
No company can survive in market by ignoring the effects of Business Environment.
Management has to analyses the environment and makes changes in organisational policies to
integrate its activities with Business Environment.
For example, recently a Consumer Organisation (CES) has claimed to find pesticide contents in
the cola drinks. Government, health ministry and court has given clean chit to Pepsi and Coke
company but then also both the companies are continuously advertising to prove and convince
customers that these drinks are safe.They are doing so because the sale and success of these
companies not only depend upon internal environment but these depend upon external forces
also.
Business Environments provide constraints as well as opportunities for the businessman. For
example, MRTP Act and wealth restriction put constraints on the businessma while the
liberalisation policies and import relaxation policies bring opportunities for the businessman.
Buisness is affected by various Enviromental Factors viz., Economic Enviroment,Socio-
cultural,Political,Technological,Demographic and International Enviroment. All these factors
significantly affect the working,policy making,decision making and stategy formulation of
business.
The characterstics of Business Enviromnet are:
(1) Totality of External Forces: Business environment is the sum totals of all those
factors/forces which are present outside the business and over which the business has no control.
(2) Specific Forces: These forces affect the different areas of an industry separately, e.g.
customers, suppliers, competitive firms, investors, etc.

5. (3) General Forces: These forces affect all the firms of an industry equally, e.g. social, political,
legal and technical situations.
(4) Inter-relatedness: The different factors of business environment are related. For example, if
there is a change in the import-export policy with the coming of a new government.
In this case, the coming of new government to power and change in the import-export policy are
political and economic changes respectively. Thus, a change in one factor affects the other
factor.
(5) Dynamic Nature: Environment is a mixture of many factors and changes in some or the
other factors continue to take place. Therefore, business environment is dynamic.
(6) Uncertainty: Nothing can be said with any amount of certainty about the factors of the
business environment because they continue to change quickly. The professional people who
determine the business strategy take into consideration the likely changes beforehand.
For example, technology changes are very rapid. Nobody can anticipate the possibility of these
swift technical changes. Anything can happen, anytime. The same is the situation of fashion.
(7) Complexity: Environment comprises of many factors. All these factors are related to each
other. Therefore, their individual effect on the business cannot be recognised. This is perhaps the
reason which makes it difficult for the business to face them.
(8) Relativity: Business environment is related to the local conditions and this is the reason as to
why the business environment happens to be different in different countries and different even in
the same country at different places.
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6. What are the Different Components
of Business Environment?
by Saritha Pujari Business Environment
A. Internal environment
Internal environment includes all those factors which influence
business and which are present within the business itself.These
factors are usually under the control of business.The study of internal
factors is really important for the study of internal environment.These
factors are:
(i) Objectives of Business,(ii) Policies of Business,(iii) Production
Capacity, (iv) Production Methods, (v) Management Information
System, (vi) Participation in Management, (vii) Composition of Board
of Directors, (viii) Managerial Attitude, (ix) Organisational Structure,
(x) Features of Human Resource, etc.
Micro environment comprises of the factors in the immediate environment of the company
that affect the performance of the company. In includes the suppliers, competitors,
Marketing intermediaries, customers, pressure groups and the general public. Supplier form
an important factor of the micro environment of business as the importance of reliable
sources of supply are obvious. Supplier include the financial labor input. Stock holders,
banks and other similar organizations that supply money to the organization are also
termed as suppliers. Managers always strive to ensure a study flow of inputs at the lowest
price. Customers are also an important factor in the internal environment of business. The
customers or the clients absorb the output of an organization and a business exists to meet
the demands of the customers. Customers could be individuals, industries, government and
other institutions. Labor force is also an important part of the internal environment of
business. Other than these the business associates, competitors, regulatory agencies and
the marketing intermediaries are also a part of the micro business environment.
Internal environmentreferstothe factorsinternal tothe firmi.e.,factorsexistingwithinabusinessfirm.
These factorsare generallycontrollable because the companyhascontrol overthemanddetermine the
potential of acompanyto meetthe environmentchallenges.

7. ImportantInternal FactorsThe importantinternal factorsare as followsItiswidelyacknowledgedfact
that any businessorganisationisnormallyundertakenforprofitmaximisation.Nonetheless,persons
holdingtoppositionsincertainmoderncorporate enterpriseshave somevalueswhichinfluence their
policies,norms,workinglanguage,systems,symbolspracticesandoverallinternal environment.This
may be referas culture of the organisationwhichisthe collective behaviourof humansthatare part of
an organisation.The extenttowhichthe culture of the organisationissharedbyall,leadstoan
importantfactorcontributingtosuccess.Vision,missionandobjectivesof the companyguide its
priorities,philosophy,policiesetc.e.g.,Ranbaxy’smission‘tobecome aresearchbasedinternational
pharmaceutical company’ledittoenterforeignmarkets.
The compositionof the boardof directorsisverycritical factorfor the developmentandperformanceof
companyas theyare highestdecision-makerauthorities,extendof professionalismof managementasit
may be professionallymanagedorfamilycontrolled,nominee of financial institutionshavinglarge
holdingsincompanies,the shareholdingpatterncouldhave importantmanagerial implications.All these
factors are of greatimportance fromthe pointof view of the company’sinternal environment.The
internal powerrelationshipbetweenthe boardof directorsandseniorexecutiveofficershighlyeffect
the decisionmakingprocessof the organisation.The qualityof humanresourcesof acompanydepends
largelyoncompetence,commitment,attitudeandmotivation,playsanimportantrole inthe successof
the organisation.Physical Resourcesandthe TechnologyThe productioncapacity,technology,R&D
work,distributionlogisticsetcare the factors that influence functioningandcompetitivenessof the firm.
The image and brandequityof the companymattersa lotinraisingfinance,formingjointventuresand
otheralliance,choosingdealersandsuppliersetc
Note:
All the above factors do influence the decisions of business,but since
all these factors are usually under the control of business,they cannot
be wholly included in the business environment.
B. External Environment
The forces and institutions out side of the organization that can potentially affect the
performance of the organization come under the external environment of Business. The
macro environment of business consist of the economic, demographic, natural, cultural and
political forces. The external environment of business is often categorized into the economic

8. environment, political and government environment, socio cultural environment and the
international environment.
External environment includes all those factors which influence
business and exist outside the business.Business has no control over
these factors. The information about these factors is important for the
study of the external environment.
Some of these factors are those with which a particular company has
very close relationship. However, there are some other factors which
influence the entire business community.
Micro environment means that environment which includes those
factors with which business is closely related. These factors influence
every industrial unit differently.These factors are as under:
(i) Customers (ii) Suppliers (iii) Competitors (iv) Public (v) Marketing
Intermediaries.
(i) Customers:
Customers of an industrial unit can be of different types. They include
household,government, industry, commercial enterprises, etc. The
number of different types of customers highly influences a firm.
For example, suppose a firm supplies goods only to the government. It
means that firm has only one customer. If because of some reason
their relations get soured, the supply of goods will stop and in that
case the closure of that firm is certain.
This clearly indicates that the customers do influence business.
Therefore, a firm should make efforts to have different kinds of
customers,
(ii) Suppliers:
Like the customers, the suppliers also influence business.If a business
has only one supplier and he gets annoyed because of some reason, the
supply of goods can be stopped and the very existence of the business

9. can be threatenedor endangered. Hence, efforts should be made to
have various suppliers.
(iii) Competitors:
The competing firms can influence business in a number of ways. They
can do so by bringing new and cheap products in the market, by
launching some sale promotion scheme or other similar methods.
(iv) Public:
Public has different constituents like the local public, press or media,
etc. The attitude or behaviour of these constituents can affect business
units. For example, the local population can oppose some established
firm whose business is excessively noisy.
Similarly, if the media gives some favourable report about a particular
company the price of its share can register an increase on this count.
(v) Marketing Intermediaries:
The marketingintermediaries play a significant role in developing any
business unit. They are those persons who reduce the distance
between the producers and agents.
For example, a company sells its goods with the help of agents and if
because of some reason all the agents get annoyed with the company
and refuse to sell its goods, there can be a crisis for the company.
External environmentreferstoexternal aspectsof the surroundingsof business enterprise, which have
influence on the functioning of business. Micro Environment The micro environment or task
environment comprises those forces in the immediate vicinity of an organisation that influence it’s
functioning.The microforcesneednotnecessarilyaffectall the firmsinaparticularindustryinthe same
way. Some of the micro factors may be particular to a firm. Important Performers in the Micro
Environment The most important performers in the micro environment are as under Business
enterprisesrequiresanumberof suppliers,whosupplyraw materialsandcomponents to the company.
It is an important force of the micro environment of a company

10. They are highly influential as they are the central point of every business. Success of business largely
depends on identifying the need, desire, tastes liking etc of a customers. Every business enterprise is
assistedmarketintermediaries,whichincludeagents,brokers,whohelpthe companytofindcustomers.
These acts as a linkbetweencompanyand final consumer.Activitesof abusinessadjustaccordingtothe
actions and reactions of a competitors. This factor should be known to a company as the upcoming
profitor revenue will onlybe drivenwhenthisfactorisincontrol.Anygroupthat has actual or potential
interestinthe business,hasitsimpactonthe business.e.g., growth of consumer groups may effect the
working of a newly developed business
Macro EnvironmentMacroenvironmenthasmajorexternalanduncontrollable factorsthatinfluence an
organisation’sdecision-makingandaffectitsperformance andstrategies.Whenthe macroenvironment
is uncontrollable, the success of a company depends on its adaptability to the environment. These
factors include Business enterprises conduct its activities in the market system with the objective of
profit maximisation, since business enterprise is essentially an economic institution. Therefore,
surroundedbyan economicenvironmentwhichconsistsof economicfactorsthatinfluencethe business
ina country.These factorsinclude grossnational product,corporate profits,inflationrate,employment,
Balance of Payments, interest rates consumer income etc. The economic and political systems of a
country are mutually dependent, the one reflecting the ideologies of the other. It comprises political
stabilityandthe policiesof the government.Ideological inclinationof political parties, personal interest
of politicians, influence of party forums etc create political environment. Socio-cultural environment
means the value attitudes, beliefs and customs of people in a given group or society. Socio-cultural
dimensionscomplicatethe environmentinwhichentrepreneurs have to manage their ventures, which
literacyrate,customs,values,beliefs,lifestyle,demographicfeaturesandmobilityof populationare part
of the social environment.
It is important for managers to notice the direction in which the society is moving and formulate
progressive policiesaccordingtothe changingsocial scenario.The progress of business depends on the
level of technologyavailable inacountrywhichgivesamassive impetus to the economic revival. It also
indicatesthe pace of researchand development and progress made in introducing modern technology
inproduction.Technologyprovidescapital intensive,butcosteffective alternative to traditional labour
intensivemethods.Inacompetitive businessenvironmenttechnologyisthe key to development. It has
a great impacton the functioningof the organisationasitestablishes codes and procedures for various
types and aspects of business and deals with deviations or infringement law like bribery, product
counterfeiting, gray markets, black markets, consumer deception and tax evasions. The coverage,
efficiencyandefficacyof the legal systemdetermineadequacy,cost and speed of economic justice and
these factors are of great importance for the growth of business. In every country there exist specific
pieces of business legislation which together guide control and regulate business activity, such as in
India Trade Mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act
1969 and ConsumerProtectionAct1986. Nobusinesscansurvive inclimaticallyinhospitable conditions.
Businesshasbroadlytworelationshipswithnatural environment.First,the environmentisthe source of
resource as raw material and secondly, it has causes damage in the process of production. Business
finance is concerned with making decisions about the investments in the business. It includes bond

11. markets,forex markets,stockmarkets,commoditymarkets,OTCmarkets,Real estate markets and cash
or spot markets. All these markets play an important role in raising finances for the companies and at
the same time give profits to the investors. It includes rules and regulations of WTO, IMF, WB, SAARC,
G20 and otherinternational bodieswhichdulyeffectthe businessorganisationoperating their business
in any particular country. Business has to exist in world market and then it should understand their
effect and take action according to these rules and regulations