Ans:
Business Environment refers to all those
aspects of the surroundings of business enterprise which have influence on the
functioning of business. An organisation can survive and grow only when it
continuously and quickly adapts to changing environment.
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Structure of Business
Environment
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Internal
Environment
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External
Environment
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Micro
Environment
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Macro
Environment
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1. Financial
resources
2. Physical
& Human resources
3. Objectives
of business 1.
Suppliers 1. Economic
4. Managerial
policies
2. Customers 2.
Socio-Cultural
5. Morale
& commitment of human resources
3. Market Intermediaries 3. Legal
6. Work
Environment
4. Competitors 4.
Technological
7. Brand
& corporate image 5. Public 5. Demographic
8. Labour
mgt. Relationship 6.
Natural
9. Technological
& R&D capabilities
7. Political
10. Promoter’s
Vision
8. International
Internal
Environment: Refers to factors existing within a
business firm. These are generally regarded as controllable factors because the
company has control over these factors. These are as follows:
1. Financial factors: Factors
like financial policies, position and capital structure are important factors
of internal environment affecting business performances, strategies and
decisions.
2. Physical and Human
Resources: The Characteristics of the human
resources like skill, quality, moral, commitment, attitude etc. Could
contribute to the strength and weakness of a business. The involvement,
initiative etc., of people at different levels may vary from business to
business.
3. Objectives of business:
The business domains of the company, priorities, direction of development,
business philosophy, business policy etc. are guided by the mission and
objectives of the company.
4. Managerial policies:
The managerial policy determines the business capacity ranges, the company
targets and the behaviour principles in relation to the relevant groups of
requirements. It regulates handling interest conflicts inside and outside.
5. Morale & Commitment
of Human Resources: Quality of human
resources, a component of internal environment is largely responsible for success
or failure of business unit.
6. Work Environment:
The organizational structure, the composition of the board of directors, extent
of professionalization of management etc. are important factors influencing
business decisions.
7. Company & Brand
Image: The image of the company matters while
raising finance, forming joint ventures or other alliances, soliciting
marketing intermediaries, entering purchase or sale contracts, launching new
products etc. Brand equity is also relevant in several of these cases.
8. Labour Management
Relationship: Factors like the amount of support
the top management enjoys from different levels of employees, shareholders and
board of directors have important influence on the decisions and their
implementation.
9. R&D &
Technological Capabilities: It determines a
company’s ability to innovate and compete.
10.
Promoter’s Vision: The
extent to which the value system is shared by all, in the organisation is an
important factor contributing to success. The value system of the founders and
those at the helm of affairs has important bearing on the choice of business,
the mission and objectives the organisation, business policies and practices.
External Environment:
Companies operate in the external environment that forces and
shape opportunities as well as threats. These forces represent “non controllable”,
which the company must monitor and respond to. SWOT (Strengths, weaknesses,
opportunities and threats) analysis is very much essential for the business
policy formulation which one could do only after examination of external
environment. The external business environment consists of macro environment
and micro environment.
Micro Environment: the Company’s immediate environment where routine activities are
affected by the certain actors. Suppliers, marketing intermediaries,
competitors, customers and the public’s operate within this environment. It is
not necessary that the micro factors affect all the firms. Some of the factors
may affect a particular firm and do not disturb to the other ones. So, it
depends that to what type of industry a firm belongs. Now let’s discuss in
brief some of the micro environmental factors.
(a) Suppliers: The supplier to a firm can alter its competitive
position and marketing capabilities. These can be raw material suppliers,
energy suppliers, suppliers of labour and capital. The relationship between
suppliers and the firm epitomizes a power equation between them. This equation
is based on the industry conditions and the extent to which each of them is
dependent on the other. For the smooth functioning of business, reliable source
of supply is a prerequisite. If any kind of uncertainties prevail regarding the
supply of the raw materials, it often compels to a firm to maintain a high
inventory which ultimately leads to the higher cost production. Therefore,
dependence on a single supplier is a risky venture. Because of the sensitivity
of the issue, firm should go to develop relations among the different suppliers
otherwise it could lead to a chaotic situation. Simultaneously firms should
reduce the stock so as to reduce the costs.
(b)
Customers: According to Peter F. Drucker “the motive of the
business is to create customers”, because a business survives only due to its
customers. Successful companies recognize and respond to the unmet needs of the
consumers profitably and in continuous manner. Because unmet needs always
exist, companies could make a fortune if they meet those needs. For example it
is the era when we could witness the increasing participation of women in the
different jobs which has already given birth to the child care business,
increased consumption of different durable items like microwave ovens, washing
machines and food processors etc. A firm should also target the different
segments on the basis of their tastes and preferences because to depend upon a
single customer is often risky. So, monitoring the customer sensitivity is a pre
condition for the success of business.
(c) Competitors: A firm’s products/services are also affected by
the nature and intensity of competition in an industry. A firm should extend
its competitive analysis to include substitutes also besides scanning direct
competitors. The objective of such an analysis is to assess and predict each competitor’s
response to changes in the firm’s strategy and industry conditions. This kind
of analysis not only ensures the firm’s competitive position in the market but
also able to pick up as its major rival in the industry. Besides the existing
competitors, it is also necessary to have an eye on the potential competitors
who may join the industry although forecasting of such competitors is a
difficult task. Thus an analysis of competition is critical for not only
evolving competitive strategy but also for strengthening a firm’s capabilities.
(d) Marketing Intermediaries: Marketing intermediaries provide a vital links
between the organization and the consumers. These people include middlemen such
as agents or brokers who help the firm to find out its customers. Physical
distribution firms such as stockiest or warehouse providers or transporters
ensure the smooth supply of the goods from their origin to the final
destination. There are certain marketing research agencies which assist the
organization in finding out the consumers so that they can target and promote
their products to the right consumers. Financial middlemen are also there who
carry out to finance the marketing activities such as transportation and
advertising etc. A firm should ensure that the link between organization and
intermediaries is appropriate and smooth because a wrong choice of the link may
cost the organization heavily. Therefore, a continuous vigil of all the
intermediaries is a must.
(e) Publics: an organization has to confront with many types
of publics during its life time. According to Cherrunilam “A public is any
group that has an actual or potential interest in or impact on an
organization’s ability to achieve its interests”. The public includes local
publics, media publics and action groups etc. The organizations are affected by
the certain acts of these publics depending upon the circumstances. For example
if a business unit is establishment in a particular locality then it has to
provide employment to the localities at least to the unskilled labour otherwise
local group may harm to that very business or they will interrupt the
functioning of the business. The media public has also to be taken into
confidence because some time they tarnish the image of the organization
unnecessarily. Simultaneously media public may disseminate vital information to
the target audience. Action groups can also create hindrances in the name of
exploitation of consumers or on the issue of environmental pollution. The
business suffers due to their activities. Therefore, their concern should also
be kept in mind. Albeit, it is wrong to think that all publics are threats to
the business yet their concerns should be considered up to a certain level.
Macro Environment: With the rapidly changing scenario, the firm
must monitor the major forces like demographic, economic, technological,
political/legal and social/cultural forces. The business must pay attention to
their casual interactions since these factors set the stage for certain
opportunities as well as threats. These macro factors are, generally, more
uncontrollable than the micro factors. A brief discussion on the important
macro environmental factors are given below:
(a)
Demographic Environment: The first macro environmental factor that
businessmen monitor is population because business is people and they create markets.
Business people are keenly interested in the size and growth rate of population
across the different regions, age distribution, educational levels, household
patterns, mixture of different racial groups and regional characteristics. For
determining the success of the business and to sustain in the market, incessant
watching of these demographic factors is a prerequisite. To enter into a
particular segment, a marketer needs to understand the age composition in that
very segment so as to decide the optimal marketing mix and also take certain
strategic decisions related to it. For example, if the youth form a large
proportion of the population, it is but natural for firms to develop their
products according to the requirement of this group. Besides the age, it is
also necessary to break up population according to sex-wise and also the role of women. Today we
can observe that more and more women have taken to work and professions and
hence it can be seen that many time saving appliances are available in the
market. Each gender group has different range of product and service needs and
media and retail preferences, which help marketers, fine-tune their market offers.
There is yet another dimension of population
changes which a businessman needs to address. For example, occupation and
literacy profile of the targeted segment. The higher literacy level will imply
a more demanding consumer as he is in the touch of the various media which
acquaint him with many information on the other hand low literacy make the
marketers look for other method of communication. The occupation of the
population also affects the choice of the products range and media habits. Any
significant moves of the population from one area to another, rural to urban,
is another important environmental factor which determines the marketing
attention. For example, the movement from north-India
to South-India will reduce the demand for warm
clothing and home heating equipment on the one hand and will increase the
demand for air conditioning on the other hand. So, the companies that carefully
analyze their markets can find major opportunities.
(b) Economic Environment: Besides people, markets require purchasing power
and that depends upon current income, savings, prices, debt and credit facilities
etc. The economic environment affects the demand structure of any industry or
product. The following factors should always be kept in mind by the business
people to determine the success of the business.
(i)Per capita income
(ii)Gross national product
(iii)Fiscal and monitory policies
(iv)Ratio of interest changed by
different financial institutions
(v)Industry life cycle and current
phase
(vi)
Trends of inflation or deflation
Each of the above factors can pose an
opportunity as well as threat to a firm. For example, in a developing economy,
the low demand for the product is due to the low income level of the people. In
such a situation a firm or company cannot generate the purchasing power of the
people so as to generate the demand of the products. But it can develop a low
priced product to suit the low income market otherwise it will be slipped out
from the market. Similarly, an industry gets a number of incentives and support
from the government if it comes under the purview of priority sector whereas
some industries face tough task if they are regarded as inessential ones.
In the industry life cycle, timing is everything
when it comes to making good cycle-sensitive decisions. The managers need to make
appropriate cutbacks prior to the onslaught of recession because at that time
sales is bound to decline which leads to increasing inventories and idle
resources and that is costly situation. On the other hand, business people cannot
afford to get caught short during a period of rapid expansion. This is where
accurate economic forecasts are a necessity and therefore, a manager must pay
careful attention to the major economic changes.
(c)Technological Environment: Technology is a term that ignites passionate
debates in many circles these days. According to some people technology have
been instrumental for environmental destruction and cultural fragmentation
whereas some others view that it has been the main cause to economic and social
progress. But no doubt it has released wonders to world such as penicillin,
open-heart surgery, family
planning devices and some other blessings like automobile, cellular phones and
internet services etc. It has also been responsible for hydrogen bomb and nerve
gas. But the businesses that ignored technological developments had to go from
the world map. For example, in India, cars like Ambassador and Premier had to
go from the scene because of obsolete technology. Likewise, containerized
movement of goods, deep freezers, trawlers fitted with freezers etc. have
affected the operations of all firms including those involved in seafood
industry. Now it has been ensured that perishable goods can be transported in a
safer manner. Explosion in information technology have made the position of
some firms vulnerable. The life cycles of the products have reduced and
expectations of the consumers are becoming higher and higher due to all these
technological changes. But to cope up with this kind of scenario, a continuous
vigil of the happenings and adequate investment on R & D department is to
be earmarked by the marketer. Marketers must also be aware of certain
government regulations while developing and launching new products with latest
technological innovations.
(d)Political/Legal Environment: Business decisions are strongly affected by
developments in the political and legal environment. This environment is
consists of laws, regulations and policies that influence and limit various
organizations. Sometimes these laws create opportunities for the business but
these also pose certain odds or threats at the other time. For example, if the
government specifies that certain products need mandatory packaging then it
will boost the cardboard and packaging companies but it will add to the cost of
the product. Regulations in advertising, like a ban on advertisement of certain
products like liquor, cigarettes and pan masalas and hoarding of food products,
gas and kerosene are the reality of today’s business. Business legislations
ensure specific purposes to protect business itself and the society as well
like unfair competitions, to protect consumers from unfair business practices
and to protect the interest of the society from unbridled business behaviour.
In India business is regulated through certain laws like Monopolies and
Restrictive Trade Practices Act, 1969 (MRTP Act), Foreign Exchange and
Regulation Act, 1973 (FERA), Partnership Act 1932, Consumer Protection Act,
1986 (CPA), and Companies Act, 1956 etc. A businessman needs to understand the
various policies and political ideologies because these things have a profound
impact on the functioning and success of the business.
(e) Social-cultural Environment : Society shapes the beliefs, values, norms,
attitudes, education and ethics of the people in which they grow up and these
factors exercise a great influence on the businesses which by far are beyond
the company’s control. All these factors are classified as social-cultural factors of the business. The buying
and consumption pattern of the people are very much determined by these factors
and cost of ignoring the customs, tastes and preferences etc. of the people
could be very high for a business. Consumers depend on cultural prescriptions
to guide their behaviour, and they assume that others will behave in ways that
are consistent with their culture. Culture unites a group of people in a unique
way and support the group’s unity. As consumers, people expect that businessman
will deliver according to the values, customs and rituals of the existing
culture. As the business is going global day by day and the world is at the
verge of ‘global village’ the need for developing understanding cultural
differences has become an essential element to survive in such a scenario.
Therefore, the marketers who wish to be the part
of the ongoing process need to understand the process of acculturation so that
they can develop ways to handle the consumers of different cultures. People’s
attitudes toward business is also determined by the culture. What is right and
what is wrong are basic to all businesses and for doing or not doing a
particular work is judged on the basis of prevalent culture and also determines
certain ethical code of conduct.
Despite the pervasive nature of culture, not all
the people within a society think, feel, and act the same way. Every society
has subcultures- group of people that share values but exhibit them in
different ways. Within a society such as the India, there are the different
tastes and preferences of the different areas like a Punjabi or a north Indian
has altogether different preferences then that of a South Indian in the name of
certain products especially in case of food and clothing and the shrewd
marketers have always capitalized on this kind of opportunities. Hence, a
thorough understanding of social-cultural environment is imperative to be
successful.
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