MBA SEM.

-II
SUBJECT-MEBE
MODULE-V: BUSINESS
ENVIRONMENT

Presented By:
Dr. Archana Sarkar
Assistant Professor
FMS, IIIM
LEARNING OBJECTIVE
Business Environment
Social and Political Environment
Technological Environment
International Business Environment
Natural and Ecological Environment
Legal and Labour Market Environment
Country specific Business Environment
 BUSINESS ENVIRONMENT:
INTRODUCTION
Business Environment: Business environment may be defined as the total surroundings, which have a direct or indirect
bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors,
social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature
and affects the business decisions of a firm. It also includes the internal factors of the business i.e. owners , employees
and their relationship with each other which can be controlled to some extent.
The features of business environment can be summarized as follows.
(a) Business environment is the sum total of all factors external to the business firm and that greatly influence their
functioning.
(b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political,
technological and legal conditions.
(c )It also includes the internal factors of the business i.e. owners , employees and their relationship with each other .
(d) Business Environment differs from place to place, region to region and country to country. E.g. Political conditions in
India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.
 NATURE OF A BUSINESS
ENVIRONMENT
Complex: Environment consists of a number of factors, events, conditions arising from different sources
which impact business thus making the business complex.
Interdependence : Factors affecting business environment like social, economic, legal, cultural etc. are
inter dependent. E.g. A rich country can make sufficient expenditure on the research and development.
Dynamic: Business environment is dynamic as it keeps on changing in terms of technological
improvement, changes in consumer preferences, entry of new competitors.
Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings.
Relativity: Business environment is a relative concept as it differs from country to country and region to
region. e.g. Demand of saree is high in India comparative to other countries.
Specific and General forces: Specific forces affects individual enterprises directly and immediately
whereas general forces have impact on all business enterprises.
Forecasting is not possible for all developments: Many developments such as interest rate fluctuations,
the rate of inflation etc. are difficult to predict on log term basis which makes difficult to maintain business
environment.
 OBJECTIVES OF BUSINESS
ENVIRONMENT
Knowledge of Information: Every businessman should be aware about the current environment
of the business to change accordingly.
Basis of Decision: It contains all the information which is needed for taking good decision. e.g.
If a business knows about its competitors, suppliers and customers they take decision about
price, purchase, salary etc.
Helpful in making of policies: For making good business policies one needs to know and scan
business through business environment.
Technological Planning: In today's environment it is really important for the business houses to
keep themselves changing according to the technological changes in the market.
Survive in the business: Sometimes industry may face recession. In such condition only those
business will survive who estimate this entire situation in advance through business environment
study.
COMPONENTS OF BUSINESS
ENVIRONMENT
 INTERNAL ENVIRONMENT
Value System: The value system of the founders and those at the helm of affairs has important bearing on the choice of
business, the mission and the objectives of the organization, business policies and practices.
Mission, Vision & Objectives: Vision means the ability to think about the future with imagination and wisdom. Vision
is an important factor in achieving the objectives of the organization. The mission is the medium through which the
objectives are achieved.
Management Structure & Nature: The structure of the organization also influences the business decisions. The
organizational structure like the composition of board of directors , influences the decisions of business as they are
internal factors . The structure and style of the organization may delay a decision making or some other helps in making
quick decisions.
Physical and Human Resources: The characteristics of the human resources like skill, quality, moral, commitment etc.,
contribute to the strength and weakness of an organization.
Work Environment: The organisational structure, company policies, extent of professionalism in management etc., are
important factors influencing business decisions.
Company Image and Brand: The image of the company matters while raising finance, forming joint ventures, entering
purchase or sales contract etc.
Labour Management Relationship: Factors like the amount of support top management enjoys from different level of
employees, and other participants influences company decisions and their implementations.
R&D and Technological Capabilities: It determines a company’s ability to innovate and compete.
 EXTERNAL ENVIRONMENT:
MICRO ENVIRONMENT
The environment which is close to business and affects its capacity to work is known as Micro or Operating
Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public. The micro
environment is also known as the task environment and operating environment because the micro
environmental forces have a direct bearing on the operations of the firm.
Suppliers: – They are the persons who supply raw material and required components to the company. They
must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier.
Customers: - Customers are regarded as the king of the market. Success of every business depends upon the
level of their customer’s satisfaction. Types of Customers: (i) Wholesalers (ii) Retailers (iii) Industries (iv)
Government and Other Institutions (v) Foreigners Market
Intermediaries: - They work as a link between business and final consumers. Types:- (i) Middleman (ii)
Marketing Agencies (iii) Financial Intermediaries (iv) Physical Intermediaries.
Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to
the strategies of the Competitors.
Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local
public. They may be the users or non-users of the product.
 EXTERNAL ENVIRONMENT: MACRO
ENVIRONMENT
Macro environment is also known as General environment and remote environment. Macro factors are
generally more uncontrollable than micro environment factors. When the macro factors become
uncontrollable , the success of company depends upon its adaptability to the environment. Macro-
environment includes:(i) Economic (vii) Technological(ii) Social (viii) Physical(iii) Demographic(iv)
Cultural(v) Political(vi) Legal
Economic Environment: - It is very complex and dynamic in nature that keeps on changing with the change
in policies or political situations. It has three elements: (i) Economic Conditions of Public (ii) Economic
Policies of the country (iii)Economic System (iv) Other Economic Factors: – Infrastructural
Facilities, Banking, Insurance companies, money markets, capital markets etc.
Political Environment: - It affects different business units extensively. Components: (a) Political Belief of
Government (b) Political Strength of the Country (c) Relation with other countries (d) Defense and Military
Policies (e) Centre State Relationship in the Country (f) Thinking Opposition Parties towards Business Unit
Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the control
of business, is known as Socio- Cultural Environment. These factors include: attitude of people to work,
family system, caste system, religion, education, marriage etc.
Technological Environment: - A systematic application of scientific knowledge to
practical task is known as technology. Everyday there has been vast changes in
products, services, lifestyles and living conditions, these changes must be analyzed
by every business unit and should adapt these changes.
Demographic Environment :- It is a study of perspective of population i.e. its size,
standard of living, growth rate, age-sex composition, family size, income level
(upper level, middle level and lower level), education level etc. Every business unit
must see these features of population and recognize their various need and produce
accordingly.
Legal Environment :- Legal environment includes flexibility and adaptability of law
and other legal rules governing the business. It may include the exact rulings and
decision of the courts.
 POLITICAL
ENVIRONMENT
Political factors are government regulations that influence business operation positively and
negatively. Managers must keep a bird’s eye view over political factors. These factors may
be current and impending legislation, political stability and changes, freedom of speech,
protection and discrimination laws are factors affecting business operation and activities.
Tax and economic policies: Increasing or decreasing rate of taxes is a good example of a
political component. Government regulations may raise the tax rate for some businesses and
can lower the same for others due to specific reasons. This decision will directly impact
businesses. This is why maintaining a strategy which can deal with such situations is very
important.
Political stability: Lack of political stability within a country can significantly impact the
operations of a business. This can especially be true for businesses that are operating on the
global scale. For instance, a hostile takeover can take over a government. Eventually, such a
situation will lead to looting, riots and general disorder within the environment. Such
situations can disrupt business operations and activities which can have a major impact on its
bottom line.
Foreign Trade Regulations: Every business has a need to expand business operation to
other countries. However, political background of a country can influence the desire for a
business to expand its operations. Tax policies that are particularly controlled by the
government can induce a particular business to expand operations in different regions
whereas; other tax policies can hinder the process of business expansion for some
industries. Government initiatives, which have been designed to support local businesses,
might work against international companies when the question is of their competitiveness
in a foreign region.
Employment Laws: Employment laws are made to protect the rights of employees and
include every aspect of employer/employee relationship. Employment law is an aspect
that is very complex and involves several pitfalls as well. When businesses’ are in touch
with the latest developments in this law, they can manage to take their business in the right
direction however, those who get it wrong needs to be completely prepared for the
expensive results it will generate. In modern corporations, employees are almost 98% of
the company for the accomplishments or lack thereof and any changes within employment
law will, of course, have a great impact on the business operations.
ECONOMICAL
FACTORS
Prices and Interest Rates:
Prices, affected by the rate of inflation, naturally impact consumer spending on goods
significantly. This is one reason the producer price index (PPI) and the consumer price
index (CPI) are considered leading economic indicators.23Higher inflation rates erode
purchasing power, making it less likely that consumers have excess income to spend
after covering basic expenses such as food and housing. Higher price tags on
consumer goods also deter spending.
Interest rates can also impact the level of spending on consumer goods substantially.
Many higher-end consumer goods, such as automobiles or jewelry, are often
purchased by consumers on credit. Higher interest rates make such purchases
substantially more expensive and therefore deter these expenditures. Higher interest
rates generally mean tighter credit as well, making it more difficult for consumers to
obtain the necessary financing for major purchases such as new cars. Consumers often
postpone purchasing luxury items until more favorable credit terms are available.
Exchange Rate: The exchange rate comes into the picture in the case of export and
import. Due to this, it affects international payment and the price of goods, affecting the
economy.
Tax Rate: The tax rate is a crucial part of the economy. The tax rate affects the price of
goods and their sales, affecting the economy.
Inflation: The increase in the demand price of goods or services increases inflation and
money supply.
Labor: Labour and cost or wage are always the important economic factors affecting
the economy. As a result, many countries have started outsourcing labor from other
countries. The company begins its plant or production where labor is cheap.
Demand / Supply: Demand or supply of goods or services affects the economy as with
the increase in demand price of goods or service increase, which results in inflation.
With inflation, the money reserve in the economy increases with the rise in the supply
of goods or services. The price of the same decreases. Demand and supply depend on
each other.
Wages: Wages paid to labor or employee are a direct cost to the company added to the cost
of goods or services through which it affects the economy. Another way wages affect the
economy is by increasing wages, consuming power, and improving consumer spending.
Law and Policies: With change or modification in the law, the economy of the country
changes. For example, if the government makes a law that should ban liquor in the
country, it will affect companies dealing with it, their employees, and shopkeepers, which
affects the economy at a broad level. Similarly, any policy made by the government will
affect the economy.
Government Activity: Government activity also affects the economy. So, for example, if
the government promotes any industry like insurance or medical or technology, it will
encourage that sector that boosts its economy, overall supporting it.
Recession: Recession affects consumers’ purchasing power, forcing companies to drop
their goods or services.
SOCIAL FACTORS
Social and cultural factors affecting business include belief systems and practices,
customs, traditions and behaviours of all people in given country, fashion trends and
market activities influencing actions and decisions.
TECHNOLOGICAL
FACTORS
Technological factors affecting business (also called technological forces) are all externally
generated changes in technologies and processes which are used (or may be used) by the company
or its competitors.
ICT: ICT can make processes and communication within a business quicker and more efficient.
Firms also need to keep their software and hardware up to date. If they don’t, they risk being seen as
old fashioned by customers and in danger of becoming obsolete.
Research and development: Research and development refers to the steps businesses take in the
innovation of new products, systems and services. In recent years research and development has led
to the introduction of:
3D printers
smart phones
tablets
a multitude of apps
Innovations can have a major impact on firms and sometimes can destroy a traditional business.
For example Kodak used to produce and sell 80% of the world’s film for cameras. But the invention
of digital cameras has caused the market for camera film to shrink dramatically.
Automation: Automation refers to the introduction of machines to do work that was previously
done by people.
For example the introduction of self-scan checkouts in supermarkets means that fewer
employees are needed on the tills.
With driverless cars and deliveries by drone on the way, businesses will need to think about:
how many people they employ
which new jobs will be needed to support advances in technology
For example, a growth area of the future is expected to be nanotechnology – which will see
devices, such as electronic circuits, being built from single atoms and molecules.
E-commerce
More and more firms are online. E-commerce:
widens the number of customers
lowers the costs of production
is highly competitive
LEGAL FACTORS
Legal factors affecting business include all regulatory and law determinants that can negatively
or positively affect results of market actions and decisions
of management of company functioning in particular country
Legal factors affect businesses in several ways. There are corporate and business laws that
determine whether a product is legal to sell in the market or not. Moreover, a business also has to
abide by the national policies and regulations for product marketing, selling, inventory
management, etc.
Securities and Investment Law
Securities law caters to the investment part of the business. Such regulations determine lawful
dealings with the investors if the owner goes for an investment loan. A promissory statement to
the investor involves federal norms and security laws. In a limited liability company, securities
law is a predominant factor as it involves third party investment procedures. To ensure the
authentic transaction and smooth debt repay, securities law is necessary.
Transactions in securities are regulated by three major legislation in India viz. Securities
Contract (Regulation) Act, 1956, Securities and Exchange Board of India Act, 1992 and
Companies Act, 2013.
Labor Protection Law
There are federal regulations to protect the labor interests in business industries. These
employment protection and labor laws determine the following parts.
Yearly wages for an employee.
Overtime scheduling and payment.
Youth employment schemes.
Protection against unlawful discriminations like caste, religion, color, or gender.
Workplace safety for employees.
Labour laws in India both enacted by central and state government some overlap between the two
in Implementation. In 2020/2021, the Indian Government has subsumed over 29 central laws and
corresponding state laws into four major labour codes, with the aim to simplify, modernize,
restructure the current regime and increase the ease of doing in business in India.
The Government of India now has four Labour Codes: the Code on Wages, 2019; the Industrial
Relations Code, 2020; the Occupational Safety, Health and Working Conditions Code, 2020;
and the Code on Social Security, 2020.
Consumer Protection Law
Consumer protection law connects the legal thread between the business and the consumer.
Through this regulation, business owners are liable to face legal issues if they get into
fraudulent dealings with the customer. The Legal Information institute has a thorough guide
on consumer protection acts in commercial fields. Following are the 4 branches of this law.
Standard Weight and Measurement Act ensures that the products subjected to trade are
weighed on standard measurement scales.
Consumer Credit Protection Act ensures that consumers have clear information about the
product pricing and interest rates for loans.
Sale of Goods Act ensures the standard of the selling products. Through this act, customers
can take legal actions in case they get damaged or flawed goods.
Trade Descriptions Act ensures that traders cannot fool the consumers with misleading and
false information about their products.
The Consumer Protection Act, 2019 India
Intellectual Property Laws
Intellectual property laws protect the patents and copyrights of a particular business. This is one of the
most prominent legal issues affecting businesses. Violation of these laws can lead to serious legal hazards.
Intellectual properties for a business include logos, domain names, business names, symbols, or specific
illustrations. If a company uses any of these intellectual properties of another company without prior legal
procedure, then the later one can strike copyright violation charges on the former company.
The Intellectual Property Act 2014 (IPA 2014)  India
Organizational Law
This is perhaps the most crucial legal factor affecting business. Organizational law implements when a
business is at the planning stage. This law determines the operational structures of a business that is yet to
launch. When a business structures, it must get a legal entity that needs to comply with state laws. These
legal entities can be of the following types.
Partnership.
Limited liability company
NGO
Corporation.
Tax Laws
Any business entity is liable to pay taxes based on its location and revenue earnings. Violating tax regulations can
end the future of the business. Hence, it is another crucial legal factor affecting business. Tax norms differ from
state to state. Some states have more flexible taxation rules than others. Tax filing involves the owner to obtain an
Employer Identification Number. Tax responsibilities for a business owner include the following taxes.
Employment tax
Sales tax (GST)
Income tax
Health and Safety Regulations
When a company hires employees, it must ensure the safety and health facilities for them. Health and safety
regulations include legal attributes that help employees to go ahead with legal proceedings if the company fails to
provide required safety and health facilities. These norms include the following.
Employees should get adequate protection while working with dangerous machinery and industrial equipment.
The workers should receive proper clothing and other equipment to meet the safety standards.
At the workplace, the rooms must have a reasonable air temperature for the employees.
The organization should maintain hygiene standards in the work site. They should also provide washing facilities
to the employees.
While working, the employees should get enough free time.
 ENVIRONMENTAL/
NATURAL FACTORS
Environmental Policies. 
Environmental policy is the commitment of a business to the regulations, laws as well as other
policy mechanisms that are concerned with environmental issues.
Environmental policy impacts businesses because the law implies organizations to change their
operational procedures and equipment so as to meet those standards which can cost businesses
some good amount of money.
Climate Change. 
Increasing issue of global warming and adverse weather conditions in the recent few years, it is
difficult for companies and organizations to operate equally in every type of weather condition.
Businesses that are directly dependent upon adequate water supply e.g., field sports or
agriculture will be affected adversely if climatic changes resulted in reduced rainfalls.
Even consumers are becoming aware and keen about this factor and are prone towards those
brands which are saving the environment or supporting this cause.
Pollution. 
Pollution can also have an impact over business strategies.
Pollution may cause some major environmental events which can result in the
disruption of supply chains or an increase in the cost of raw material. Organizations
need to monitor such events and develop contingency plans so as to deal with them.
Availability of natural resources. 
Amongst external environment factors, this factor refers to the physical environment
of a business.
Natural resources are very important for most businesses and many corporations
have natural resources as their major raw material.
Lack of natural resources can hinder an organization’s producing ability and hence
its output.
Recycling. 
Recycling is another aspect of a greener environment.
The cost of dumping waste in landfills is increasing and is resulting in not only shortage of
wastages but, it also provides harm to the environment.
Recycled materials not only results in making the production process cost-effective but, it
also helps the business to save some money and helping the environment.
Waste Disposal. 
Although, there has been a positive trend towards recycling of waste materials, still there is
several businesses which dump wastage in landfills.  
This not only increases their cost of dumping waste but, is also harmful to the environment
in which the business operates.
Businesses, in order to meet their bottom line, should first look at producing less waste and
use fewer resources which will reduce their production cost along with making the
corporation sustainable.
EXAMPLES;
https://www.wbcsd.org/Overview/News-Insights/WBCSD-insights/Indian-businesse
s-can-lead-global-action-on-sustainability
https://indianexpress.com/article/india/net-zero-carbon-emissions-clean-energy-nare
ndra-modi-7603338/
https://www.tata.com/community/environment
https://www.moneycontrol.com/news/business/tata-companies-articulate-esg-strateg
y-tcs-tata-steel-tata-chem-go-big-on-climate-consciousness-7025351.html
THANK YOU