NAME OF SUBJECT:

BUSINESS ENVIRONMENT
Submitted To:
Prof: Ashwini Kadam

Submitted By:
DEEPALI BALKRISHNA TENDULKAR

ROLL NO: 10103

CORE MBA- 1ST YEAR

What is Business?
Business may be understood as the organized efforts of enterprises to supply consumers with goods & services for a profit. Businesses vary in size as measured by the number of employees or by sales volume. The purpose of business goes beyond earning profit. It is an important institution in society, Be it for the goods and services, creation of job opportunitits: offer better quality life; or contributing to the economic growth of the country and putting it on global map: role of business is crucial.

Nature of business
The purpose of business goes beyond earning profit. It is an important institution in society. Be it for the supply of goods and services. Creation of the job opportunities. Offer of better quality of life. Contribution to the economic growth of country and putting it on the global map

Scope of business
The scope of business is very wide. It covers activities related to production, distribution of goods and services with an aim to earn profit. The business activities are usually divided into two parts: 1. Industry. 2. Commerce.

Objectives of Business
Profit. Growth. Power. Joy of creation. Service to society. Market Leadership. Challenging. Good corporate citizenship.

What is business environment?

Generally speaking an environment includes the air we breathe, the water we drink, the available business, social and educational infrastructure in the locality, state and country etc. In the context of business the environment refers to the sum of internal and external forces operating on an organization. The managers must perforce recognize the elements, severity and impact of these forces on the organization. They must identify, evaluate and react to the forces triggered by the external environment. The environment in which an organization exists could be broadly divided into two parts the external and the internal environment. Since the environment is complex, dynamic, multi- faceted and has a far reaching impact, dividing it into external and internal components enables us to understand it better. Here we deal with the appraisal of the external environment. We start with gaining an understanding of the concept of environment. This is done through a description of four important characteristics of the environment, dividing the environment into its external and internal parts, observing how a systematic approach can help in environmental appraisal, and classifying the external environment into two parts, the general and the relevant environment. The journey from 20th century to 21st century has already started with drastic changes in economic, political, socio-cultural, legal and behavioural environment. Business is no more a Business now.

The global business environment can be defined as the environment in

different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision making on resource use and capabilities. This includes the social, political, economic, regulatory, tax, cultural, legal, and technological environments. The political environment in a country influences the legislations and government rules and regulations under which a foreign firm operates. The economic environment relates to all the factors that contribute to a country's attractiveness for foreign businesses. Every country in the world follows its own system of law. A foreign company operating in that particular country has to abide with its system of law as long as it is operating in that country. The technological environment comprises factors related to the materials and machines used in manufacturing goods and services. Receptivity of organizations to new technology and adoption of new technology by consumers influence decisions made in an organization. As firms have no control over the external environment, their success depends upon how well they adapt to the external environment. A firm's 3

ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment, determine its success. As firms have no control over the external environment, their success depends upon how well they adapt to the external environment. A firm's ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment, determine its success. Business may be understood as the organized efforts of enterprises to supply consumers with goods and services to earn profit. Business environment consist of all those factors that have bearing on the business such as strengths, weakness, internal power relationship and orientations of the organization, government policies and regulations, nature of the economy and economic conditions, socio- cultural factors, demographic trends, natural factors, global trends etc. The external environment (Macro Environment) includes all the factors outside the organization which provide opportunity or pose threats to the organization. The internal environment (Micro Environment) refers to all the factors within an organization which impart strengths or cause weaknesses of a strategic nature. Changing Indian Business Environment We have seen earlier that environment is dynamic and changes occur continuously. In the Indian business scene, many changes have been introduced in the liberalization process of economy which began in 1990s and still continues.

PEST analysis
Business environment is a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business. The process of starting up and developing a business is not just an adventure, but also a real challenge. In order to help entrepreneurs with this, it is essential to create a favourable business environment. Business environment encompasses all those factors that affect a company's operations, and includes customers, competitors, stakeholders, suppliers, industry trends, regulations, other government activities, social and economic factors and technological developments. PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research and gives a certain overview of the different macro environmental factors that the company has to take into consideration. It is a useful 4

strategic tool for understanding market growth or decline, business position, potential and direction for operations.

Identifying and responding to the major macro environment forces

Companies and their suppliers, marketing intermediaries,customers,competitors and publics all operate in a macro environment of forces and trends that shape opportunities and pose threates.These forces represent non controllable to which the company must monitor and respond. In this economic arena, companies and consumers are increasingly affected by global forces. Within the rapidly changing global picture, the firm must monitor four major forces: Demographic, Economic, Natural, Technological, Political and Socio-Cultural. For example, explosive population growth (demographic) leads to more resource depletion and pollution (natural), which leads consumers to call for more laws (political- legal), which stimulate new technological solutions and product (technological), which, if they are affordable (economic), may actually change attitudes and behavior (socio- cultural). Demographic Environment: i) ii) iii) iv) i) ii) iii) iv) i) ii) iii) iv) i) ii) iii) iv) i) Size and growth rate of population Population Age Mix Educational levels Household patterns Income Distribution Pricing Policy Debt and credit availability Savings Shortage of Raw material Increased Energy Costs Anti- Pollution Pressures Changing Role of Government towards environmental protection Accelerating pace of Change Unlimited Opportunities for Innovation Varying R&D Budgets Increased Regulation of Technological Change Legislation Regulating Business 5

Economic Environment:

Natural Environment:

Technological Environment:

Political Environment:

ii) iii) iv) i) ii) iii) iv)

Consumer Protection Tariff, export & import regulations Foreign Exchange Market View of themselves, others Views of Organization, society Existence of Subculture High persistence of core cultural values

Socio-Cultural Environment:

SWOT analysis
The environment in which an organization exists can, therefore, be described in terms of the opportunities and threats operating in the external environment apart from the strengths and weaknesses existing in the internal environment. The four environmental influences could be described as follows: An opportunity is a favourable condition in the organization's environment which enables it to consolidate and strengthen its position. An example of an opportunity is growing demand for the products or services that a company provides. A threat is an unfavourable condition in the organization's environment which creates a risk for, or causes damage to, the organization. An example of a threat is the emergence of strong new competitors who are likely to offer stiff competition to the existing companies in an industry. A strength is an inherent capacity which an organization can use to gain strategic advantage over its competitors. An example of a strength is superior research and development skills which can be used for new product development so that the company gains competitive advantage. A weakness is an inherent limitation or constraint which creates a strategic disadvantage. An example of a weakness is over dependence on a single product line, which is potentially risky for a company in times of crisis. An understanding of the external environment, in terms of the opportunities and threats, and the internal environment, in terms of the strengths and weaknesses, is crucial for the existence, growth and profitability of any organization. A systematic approach to understanding the environment is the SWOT analysis. Business firms undertake SWOT analysis to understand the 6

external and internal environment. SWOT, which is the acronym for strengths, weaknesses, opportunities and threats. Through such an analysis, the strengths and weaknesses existing within an organization can be matched with the opportunities and threats operating in the environment so that an effective strategy can be formulated. An effective organizational strategy, therefore, is one that capitalises on the opportunities through the use of strengths and neutralises the threats by minimizing the impact of weaknesses. The process of strategy formulation starts with, and critically depends on, the appraisal of the external and internal environment of an organization.

Strategic and Creative Use of SWOT Analysis

SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. An example of a strategic planning technique that incorporates an objectivedriven SWOT analysis is Strategic Creative Analysis (SCAN). Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

Strengths: attributes of the person or company that is helpful to achieving the objective. Weaknesses: attributes of the person or company that is harmful to achieving the objective. Opportunities: external conditions that is helpful to achieving the objective. Threats: external conditions which could do damage to the objective.

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories:

Internal factors The strengths and weaknesses internal to the organization. External factors The opportunities and threats presented by the external environment to the organization. - Use a PEST or PESTLE analysis to help identify factors 7

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and sociocultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix. SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats. It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: nonprofit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also be used in creating a recommendation during a viability study.

Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. and international trade and customs consultant, uses the Six Tenets when giving advice on how to globalize one's business. The Six Tenets are as follows. 1. Take advantage of trade agreements: think outside the border
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Familiarize yourself with preference programs and trade agreements. Read the fine print. Participate in the process. Seize opportunities when they arise. You and your brand are inseparable. You must be vigilant in protecting your intellectual property both at home 8

2. Protect your brand at all costs

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and abroad.
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You must be vigilant in enforcing your IP rights. Protect your worldwide reputation by strict adherence to labor and human rights standards. Strong ethics translate into good business. Forge ethical strategic partnerships. Understand corporate accountability laws. Become involved with the international business self-regulation movement. Develop compliance protocols for import and export operations. Memorialize your company's code of ethics and compliance practices in writing. Appoint a leader. Security requires transparency throughout the supply chain. Participate in trade-government partnerships. Make the most of new security measures. Secure your data. Keep your personnel secure. The unexpected will happen. Do your research now. Address your particular circumstances. Go to the source. Keep communications open. Keep the home office operational. Fly the flag at your overseas locations. Relate to offshore associates on a personal level.

3. Maintain high ethical standards

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4. Stay secure in an insecure world

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5. Expect the Unexpected

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6. All global business is personal

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