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Business Environment:

Business Meaning:

All creative human activities relating to the production of goods or services for satisfying
wants are known as Business.

According to Peterson and Plowman:

“Business may be defined as an activity in which different persons exchange something of


value, whether goods or services for mutual gain or profit”

According to W.R. Spiegel:

“All the activities included in the production and sale of goods or services may be classified as
business activities”

According to F.C Hooper:

“Whole complex field of commerce and industry, the basic industries, process and
manufacturing and the network of ancillary services, distribution, banking, insurance, transport, and
so on which serve and interpenetrate the world of business as whole.

Thus, business may be understood as the “Organized efforts of enterprise supply consumers
with goods and services for a profit”

“Business is an activity that carried out for the purpose of supplying goods and services to
consumers to satisfy their felt needs”.

Business is an activity that involves many activities like production finance marketing trade
insurance agency packaging etc. all business carried out to earn a profit by fulfilling the needs of
consumers. In other words business involves people they occupy central place around whom by
whom and for whom a business is run. BUSINESS IS PEOPLE.

Nature of Business:

1. Vary in size

2. To earn a profit

3. Supplying of goods and services

4. Creation of job opportunities

5. Offer to better quality of life

6. Contributing economic growth of country.

7. Society can not do without business


Scope of Business:
Business includes all activities connected with production, trade, banking, finance,
insurance, agency, advertising, packaging and numerous other related activities. Business also
includes all efforts to associate with restrictions and government requirements and obligation of
consumers' employees' owners' and to other interest groups.

Business Environment:
No business organizations functions in a vacuum. Every business needs to take decisions and
strategies purveying under the many internal and external factors. The sum all those factors and
forces which have a greater impact on the business decisions are collectively called as Environment.
Business Environment Meaning:
Business environment refers to all those internal and external factors which impact the
functioning/performance of a firm and/or its decision making particularly strategies.
According to Gerald Bell:
“An organization external environment consists of those things outside an organization such
as customers, competitors, government units, suppliers, financial firms and labour pools that are
relevant to an organization's operations”
Thus, it can be said environment as “the set of external factors such as the economic factors,
socio-cultural factors, and government factors demographic factors geophysical factors, which are
uncontrollable in nature and affects the business decisions of a firma or company.
Political Environment:
It refers to the influence exerted by the three political institutions viz., legislature, executive
and the judiciary in shaping directing developing and controlling business activities.
Technological environment:
It is the systematic application of scientific or other organized knowledge to practical tasks.
Its is through business technology reaches people.
Economic environment:
It refers to all forces, which have an economic impact on business industrial production,
agriculture, planning, basic economic philosophy, infrastructure, national income, per capita
income, money supply, population savings etc,
Social cultural environment:
Such factors are out of company's gate include peoples attitude to work and wealth, role of
family, relation and education, ethical issues, and social responsibilities of business.
Natural environment:
Business cannot bear the effects of natural hazards for example drought, poverty and
earthquake. Businesses still find himself helpless before mighty nature.
Global environment:
It refers to international trade wherein currency differentiation, language, international
markets etc. The business is reckoned t view as a global perspective.
Types of Business Environment:
The business environment can be divided into two ways.

(A) THE MICRO ENVIRONMENT OF BUSINESS and


(B)THE MACRO ENVIRONMENT OF BUSINESS

I. THE MICRO ENVIRONMENT OF BUSINESS


The micro environment of business consists of the forces in the company's immediate environment that
affects the performance of the company. These forces are more closely linked with the business than the macro
factors.
According to Philip Kotler:
“The micro environment consists of the actors in the company's immediate environment that affects the
performance of the company. These include the suppliers, marketing intermediaries, competitors, customers
and the public.
The micro environment factors are discussed in detail as follows.
Suppliers:
The important force in the micro environment of a company is the suppliers i.e., those who supply the
inputs like raw materials and components to the company.
Importance;
 For the smooth functioning of the business it is very important to have reliable source of supply.
 Uncertainty regarding the supply or other supply problems will compel the companies to maintain high
inventories which will cause increase in costs.
It is very risky to depend on a single supplier because a strike, lock out or any other production problem with
that supplier may seriously affect the company, similarly a change in the attitude of behavior of the supplier may
also affect the company. Hence, multiple sources of supply often help reduce such risks.
Many companies go for pertanising/relationship marketing because of scarcity of resources and to
maintain healthy supply from the suppliers in international level.
Customers:
The customers have a direct impact on the business, companies go to create and sustain customers for
continuity of business. A company may have different categories of customers viz,
 Industrial customers
 Retailers customers'
 Wholesalers customers
 Government bodies customer'
 Foreign customers
Labour:
In big organizations where hundreds of workers are employed, the labour force is
organized in the form of trade unions. The trade unions interact with the management for higher
wages and bonus, better working conditions etc. They pressurize the management for the
fulfillment of their demands and resort to go slow tactics, strikes gherao.
Competitors:
Competitors play a vital role in running the business enterprise; business has to adjust its
various business activities according to the behavior of the competitors. They are various types of
competitors:
1. Desire Competition. This type of competition generally found in where the countries
having low income and the unsatisfied customers. Such a countries the basic Task of buying
products go to either he or she has to buy T V or refrigerator or washing machine. This type of
competition among desires is termed as desire competition.
2. Generic competition: generic competition arises where the consumers has many option in
single line of products. For example one may have options in investing the money either
in UTI or post office or banks. It is called generic competition.
3. Product form competition: in this type of competition the consumer has to choose
between different forms of the product. For example if the consumer decides to go for a
washing machine the next question which form of the washing machine semi automatic
or fully automatic front loading or top loading etc.
4. Brand competition: this type of competition arises where consumers has many brands in
similar products. The marketer in this regarding needs to create brand demand for the
products.
Marketing intermediaries:
The marketing intermediaries are those firms aid the company in promoting, selling, and
distributing its goods to final buyers.
The marketing intermediaries include middlemen such as agents and merchants who
“help the company find customers or close sales with them”. There are three intermediaries called
Physical distribution firms which assist the company in stocking an moving goods from their
origin to their destination” such as warehouses and transportation firms
Marketing services agents which assist the company in targeting and promoting its products to
the right markets such as advertising agencies, marketing research firms media firms and
consulting firms
Financial intermediaries: Which finance marketing activities and insure business risks.
Financiers:
Another important micro environment factor is the financiers of the company. Besides the financing
capabilities their policies and strategies attitudes (including attitude towards risk) ability to provide non
financial assistance etc. are very important
Public:
A company may encounter certain publics in its environment. A public is any group that has an actual or
potential interest in or impact on an organization's ability to achieve its interests. Media public, citizen action
publics and local publics are some examples.

I. MICRO ENVIRONMENT:
The macro environment of business includes activities which are uncontrollable and need proper
nourishment and attention on the part of a business enterprise.
According to Hill and Jones “The macro environment consists of the broader economic social demographic
political legal and technological setting within which the industry and the company are placed”.
According to Elbing “Macro environment is the indirect action environment as it may not have an immediate
direct effect on the operation but nevertheless have influence”.

The important macro environmental factors are explained as follows:


1. Economic environment:
Business fortunes and strategies are influenced by the economic characteristics and economic policy
dimensions. The economic environment includes the structure and nature of the economy the stage of
development of he economy, economic resources the level of income, the distribution of income and assets
global economic linkages economic etc.
Nature of economy:
The nature of economy is widely classified the economies on the basis of the per capita income.
Countries are broadly classified as
1) Low income economies: are economies with very low level of per capita income.
2) High income economies: are countries with very rich income per capita.
3) Middle income economies: are economies falling between low income and high income economies.
Structure of the economy:
The structure of economy is classified on the basis of contribution from many sectors like

Primary sector mostly agriculture


Secondary sector are large, medium and small scale industries.
Economic Policies:
There are several economic policies which can have a very great impact on business.
 Industrial policy.
 Trade policy
 Foreign exchange policy
 Foreign investment and technology policy
 Fiscal policy
 Monetary policy:
Economic Conditions:
General economic conditions affect the business. Economic pass through periods of boom and
recession. A boom is characterized by high level of output, employment and rising demand and prices. A
recession has the opposite of these characteristics.
1. Political and Government Environment:
Political environment refers to the influence exerted by the three political institutions:
1. Legislature
2. Executive
3. Judiciary
The legislature decides on a particular course of action. Government is the executive and its job is to
implement whatever was decided by parliament. The judiciary has to ensure that both the legislature and
executive function in public interest and within the boundaries of constitution.
The political legal environment of a business depends on:
1. Legal rules for business for its formulation and implementation, its efficiency and effectiveness.
2. Defense and military policy impact of defines on industrial enterprise in terms of trading with potential
enemies, purchasing policies strategic industrial development etc.
3. Political stability impact of factors like civil war, the declaration of presidents rule and emergency changes in
the form and structure of government administration.
4. Political organization ideology of the ruling government philosophy of the political parties' degree and extent
of the bureaucratic delays, red tapism, the influence of premier groups the question of donation by business
houses to political parties.
5. Flexibility and adaptability of law constitutional amendments their urgency and frequency, velocity of public
policies.
6. Foreign policy alignment or non-alignment tariffs customers' unions' etc image of the country and its leaders.
3. Socio-Cultural Environment:
Socio cultural factors include people's attitude to work and health, role of family, marriage, religion and
education, ethical issues, social responsibility of business.
3. Natural environment:
In natural environment we include geographical and ecological factors. Both these factors are relevant to
the business. These factors include:
1. Natural resources endowment.
2. weather and climate conditions
3. Topographical factors.
4. location aspects
5. Port facilities etc.
5. Demographic Environment:
Demographic factors include:
1. Size, growth rate, age composition, sex composition, etc of population.
2. Family size
3. Economic stratification of population
4. Educational level
5. Caste, religion etc.
6. Technological environment;
In order to survive in today's competitive world, a business has to adopt technological changes from
time to time. It is the systematic application of scientific or other organized knowledge to practical tasks. In
other words technology include the tools both machines (hard technology) and ways of thinking (soft
technology) available to solve problems and promote progress between among and between societies. Its is
through business technology reaches people. There are two functions of business in creation of customers those
are
Marketing and innovation. Marketing needs research based decisions where the research identifies the
consumer needs and provides information for target setting and programming the complete marketing effort.
Innovation may be defined as the technical industrial and commercial steps which lead to the marketing of new
manufactured products and to commercial use of new technical processes an equipment.
1. Radical innovation: a basic technological innovation that establishes a new functionality (e.g., steam
engine or steamboat)
2. Incremental innovation- a change in an existing technology system that does not alter functionality but
incrementally improves performance features safety or quality or lowers cost.
3. Next generation technology innovation: a change in an existing technology system that does not alter
functioning but dramatically improves performance feature safety or quality or lowers cost and opens up
new applications.
7. International environment:
Implications of global or international environment are as follows:
 Due to liberalization Indian companies are forced to view business issues from the global perspective.
 Safe and protected markets are o longer there world is becoming small in size due to advanced means of
transport and communication facilities.
 Learning of foreign languages is a must for every business manager.
 Acquiring familiarity with foreign currencies is also mist
 Facing political and legal uncertainties is inevitable.
 To survive amidst intense competition every businessman should try to adapt his products to different
customer needs and tastes.
Control Restrictive Trade Practices:
A restrictive trade practice is a practice, which has the effect actual or probable of restricting, lessening, or destroying
competition. Such trade practices may tend to obstruct the flow or production or to bring about manipulation of prices
or condition of delivery etc. to the common detriment.
A unfair trade practice is a trade practice which for the purpose of promoting the ale fuse or supply of any
goods or the provision of any services, adopts one or more unfair trade practices like misleading advertisement, and
thereby causes loss or injury to the consumers of such goods or services whether by eliminating or restrict
competition or otherwise.
Fair competition is the hallmark of a free enterprise economy. In the absence of any safeguards, this may
provide scope for unfair competition like powerful competition crushing on small firm through unfair means,
collusion and mergers and acquisitions and some government policies. This caused the concentration of economic
power to the powerful competitors. In this regard the government step forward into establish some policies like
MRTP Act, 1970 and competition act, 2002.
MRTP Act, 1970.
The monopolies and restrictive trade practices Act, 1959 brought into force fromst1 June 1970. Objectives of
the Act:
1. Prevention of concentration of economic power to the common detriment
2. Control of Monopolistic, restrictive and unfair trade practices which are prejudiced to public interest.
It prevents the competition in production supply or distribution of any goods or services limiting technical
development and capital investment or allowing quality of goods or services.
Competition Act, 2002
Competition policy refers to the government policy designed to ensure contestability and fair competition by
removing or preventing factors and forces that tend to distort fair competition.
The objectives of this act are
1. To preserve and promote competition
2. To Ensure the efficient allocation of resources in an economy
3. To ensure the lowest prices and adequate supplies for consumers.
4. To promote efficiency.
5. To support the small and medium scale industries.

GATT:
The general agreements o Tariffs and Trade was born in 1948 to liberlise the trade in international level.
Since 1948 the international trading system was adhered to principles and guidance of GATT. It was an
agreement signed by the contracting nations which were admitted on the basis of their willingness to accept the GATT
disciplines.
The GATT was transformed in to WTO in 1995.
Objectives:
1. Raising standard of living
2. Enhancing full employment and large steadily growing volume of real income and effective demand.
3. Developing full use of the resources of the world.
4. Expansion of production and international trade.
The rules or convention of GATT.
 Any proposed change in tariff or commercial policy the members countries should not be undertaken without
consultation of other parties to the agreement.
 The member countries should work towards reduction of tariffs and other barriers to international trade which
should be negotiated within the framework of GATT
Principles of GATT:
 Non-discrimination
 Prohibition of quantitative restrictions
 Consultation.
Multinational corporations:
A corporation that controls production facilities in more than one country, such facilities having been
acquired through the process of foreign direct investment. Features:
1. Produce abroad as well as in the headquarters country.
2. Operate in a certain minimum number of nations
3. Getting some income foreign operations
4. Having certain minimum number of employees in host country.
5. Possess a management team with geocentric orientations
6. Directly control foreign investments.
Merits:
1. It helps to increase the investment level and employment in host country
2. Transformation of technology is possible to one country to another country.
3. They transform the management techniques to the host countries.
4. There is increase in export in the host countries can be possible.
5. They work equalize the cost of factors of production around the world.
6. MNC's provide the efficient means of integrating the national economies.
7. They enable innovations and inventions in host countries
8. They stimulate, encourage, and assist the domestic enterprise.
9. MNC's help in increase competition and break domestic monopolies.
Demerits:
The main demerits of MNC's are:
1. MNC's are profit oriented rather than development in host countries.
2. Through their power and flexibility, they weaken the national economic autonomy and control.
3. The tremendous power of MNCs may cause to support bribes, terrorist , and political influence etc.
this causes to get dominate on domestic industries.
4. These corporations consume natural resources from that depletion of resources may happen.
5. Sometimes transfer pricing may cause to avoid the taxes.
6. The MNC's have criticized for their business strategies and practices in the host countr
Y.
Liberalization privatization and globalization:
Privatization:
It means transfer of ownership and/or management of an enterprise from the public sector to the
private sector. It also means the withdrawal of the state from an industry or sector partially of fully. Another
dimension of privatization is opening up of an industry that has been reserved for the public sector to the
private sector. The process of moving from a government-controlled system to a privately run, for-profit
system. he repurchasing of all of a company's stock by employees or a private investor. As a result of such an
initiative, the company stops being publicly traded. Sometimes, the company might have to take on
significant debt to finance the change in ownership structure. Companies might want to go private in order to
restructure their businesses (when they feel that the process might affect their stock prices poorly in the short
run). They might also want to go private to avoid the expense and regulations associated with remaining
listed on a stock exchange. Also called going private. opposite of going public.
Ways of privatization:
The government takes following ways to privatize a public sector
 Joint public-private venture
 Leasing
 Franchising
Benefits of privatization:
 It reduces the fiscal burden of the state by relieving it of the losses.
 It enables to mop up the funds
 It helps to make out the fair size of administrative machinery.
 It enables the government to concentrate more on the essential state functions
 It helps to the economic development
 It may result in better management of the enterprises
 It encourages the entrepreneurship
 It may increase the number of workers and common man who are shareholders.
Arguments against privatization:
 It discards the public sector units
 It may encourage of economic power to common detriment.
 It may support monopoly
 It may lose the profitable units belong to the government.
Sins of pitfalls of privatization:
 Lack of proper strategy
 Ambiguity of objectives
 Connivance
 Wrong time
 Lack of political consensus
 Wrong labour strategies
 Lack of political will
 Poor financial strategies
 Wrong environment
 Prevalence of monopoly elements
 Problem of cultural change.
Liberalization:
liberalization means the removal or relaxation of statutory barriers against the development of market
competition and does not include the pursuit of liberal trade policy with other nations, the abolition of
protective tariff rates, or the decontrol of foreign exchange rates in line with international market
forces.
Globalization:
According to the international monetory fund, “the growing economic interdependence of
countries worldwide through valume and variety of cross border transactions in goods and services
and of international capial flows, and also through the more rapid and widespread diffusion of
technology.
Globalization is attitude of mind it is a mind set which views of entire world as a single market
so that the corporate strategy is based on the dynamics of the global business environment.
Globalization encompasses the following
 Doing, or planning to expand business globally.
 Giving ujp the distinction between the domestic marker and foreign market and developing a
global outlook of the business
 Locating the production an other physical facilities on a consideration of the global business
dynamics, irrespective of national considerations.
 Basing product development and production planning on the global market consideration.
 Global sourcing of factors of production, raw materials, components machinery technology
finance etc, are obtained from the best source anywhere in the world.
 Global orientation of organization structure and management culture.

Globalization in Indian business:


In India the era of globalization have taken from 1991. Since than the foreign investment by
Indian firms was very significant.
Obstacles to globalization:
 Government policy and procedures
 High cost
 Poor infrastructure
 Obsolescence
 Resistance to change
 Poor quality image
 Supply problems
 Small size
 Lack of experience
 Limited R&D and marketing research
 Growing competition
 Trade barriers

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