BUSINESS ENVIRONMENT

What is Business..??
A business is organized efforts of the enterprise to supply goods and services to consumers with the aim of making profits e.g. Maruti selling Maruti swift, alto etc with the aim for making profits OR a small tea kiosk

SCOPE OF BUSINESS
Suppliers of Raw Materials Manufacture Dealer Advertising agency Banker Insurance Company

So we can conclude that scope is very vast and includes all activities related to production,trade,banking,insurance, advertising , packaging.

NATURE OF BUSINESS
1) Change : Business is dynamic and needs to adapt to changing environment. EXAMPLE Honda city price reduced by 80k As sales were Falling due to Higher petrol cost.. And It is planning to bring new technology and diesel engine ..

2)

RISK :
Risk Is a constant variable in business .

3)

GLOBALISATION :

Now a days business, Is not limited to any region/location It helps the company in the following ways Increase in sales Cheaper manpower Increase in reputation New technology e.g.- Call Centers in India

4)

DIVERSIFICATION :

It means now a days business are expanding and having various types of businesses. For example TATA group have different business like Tata motors, Tanishq , TATA indicom etc

Benefits of diversification : Reduces risk of one business failing Increase in revenue

5) INFORMATION :
Accuracy and timely availability of information helps in running the business smoothly and tackling competitionIt is important that technology is used so that data can be analysed to take strategic decision.

6) GOVERNMENT INTERVENTION :
Business is also affected by govt policies i.e. Cap on export/import Fixation of MRP Changes in economic polices

OBJECTIVES OF BUSINESS
Economic Objectives
1) Earning Profits 2) Increasing sales 3) Efficient use of resources 4) Constant innovations

Social Objectives
1) 2) 3) 4) Providing quality goods and services Adopting fair trade practices Providing goods/services at fair prices Contribution to general welfare of society.

Human Objectives
1) Fair Compensation to employees 2) Social and Psychological satisfaction of employees 3) Training/ Development of human resources

National Objectives
1) 2) 3) 4) 5) Employment creation Production according to national priority Contribution to economic growth Self sufficiency and export promotion Increasing standard of living

Business Environment
Definition of Business environment The Aggregate

of all conditions, events and influences that surround and affect business.

INTERNAL ENVIRONMENT
Internal Environment consists of factors which are controllable to an extent. 1) Value system: The value system has a important bearing on choice of business and mission , policies and practices of the company. Example: Murugappa Group took over EID Parry group but didnt acquire the most profitable business (liquor) since liquor business didnt fit into value system of Murugappa Group. 2) Management Structure : Organizational structure, Shareholding pattern also affects business decisions . For example: In blue-chip PSU companies i.e. BPCL,HPCL etc the decision of pricing petroleum products is highly influenced by Govt since its the majority shareholder. 3) Human Resources : The skills,quality,attitude etc of employees also affects business operations. Example: Microsoft and Google hire the best available talent . 4 ) Company Image/Brand Image : The goodwill of the company is very helpful in raising finances, joint ventures, getting orders etc .Example: Adidas, Nike ,Dell 5) Miscellaneous Factors: These are many others which affect business a) Physical Assets and Facilities: Toyota b) R&D and technological budget: Pfizer c) Marketing Reach : Eureka Forbes d) Financial Might : Reliance

MACRO ENVIRONMENT Macro Environment consists of the factors that are generally uncontrollable .The success of the firm depends upon the adaptability to change accordingly

Factors in Macro-Environment
1) Political Environment 2) Economic Environment 3) Social-Cultural Environment 4) Technological Environment 5) Environmental 6) Legal Environment

P+E+S+T+E+L

= PESTEL

POLITICAL ENVIRONMENT
The Political Fraternity has a major impact on Business: 1) Political Support helps in getting concessions & contracts/Licenses- RIL 2) Political Vendetta can deeply affect business- TATA Nano hit by Mamta Banarjee , FDI in Retail Backlash by political parties 3) Good Political links are used to get away with Scams many a times by using clout to escape punishments . 4) The cost of doing business is very high in India due to rampant corruption. This demotivates many to start business. 5) Many companies do International Lobbying by donating to international political parties to get favors in due course.

ECONOMIC ENVIRONMENT
Business fortunes and strategies are influenced by the economic characteristics and economic policies. 1) Nature of the Economy- Developed, Developing economy etc 2) Economic Policies- Fiscal, Monetary , Industrial policies etc 3) Economic conditions- Recession, Boom etc 4) Distribution of National income and assets Per capita income etc 5) Infrastructure- Highways, ports etc 6) Financial sectors- Banks/Financial institutions for credit

SOCIAL-CULTURAL ENVIRONMENT
It refers to the influence exercised by certain social and cultural factors which are beyond the control of business . 1) Family system : Joint family------ Nuclear Family increasing housing demand 2) Caste system: Reduction in casteism has a positive affect of mobility of labour. 3) Religion : Quran prohibits interest transactions. This gave birth to Islamic Banking. 4) Preferences/Habits: Different manner in which product positioned E.g. Cycle 5) Customs and traditions: Beef protests in India against McDonald. 6) Marriage : Increases population------------ Increases Demand 7) Age : Youngster have different buying patterns vs. Older persons i.e.-Subway 8) Semantic problems: Language of foreign countries need to be learnt Chinese

Technological Environment
Now a days technology is changing rapidly and has a tremendous influence on business. Some developments in the world of technology are as follows

1) Rapid internet usage increase: [Link] to book tickets 2) Increasing Mobile usage: Makes communication faster and cheaper. 3) CRM : Customer relationship management is very important now to have a effective relationship with the customers i.e. Call centers of Banks. 4) Video Conferencing: It has hit business of Airlines very badly.
It is very important that business keeps pace with the latest technologies. If companies become complacent , it can hurt them badly. NOKIA once the undisputed market leader in India has been completely battered by the new SAMSUNG smart phones. Nokia is now finding it very hard to regain lost ground in India

ENVIRONMENTAL FACTORS
The natural environment is very very important and affects business. 1) Availability of Natural resources Petroleum in Arab countries 2) Weather Conditions- Winters rarely in Mumbai 3) Natural Disasters- Tsunami in Andaman and Nicobar, Earthquake in Japan

LEGAL ENVIRONMENT
Legal forces are gaining considerable importance in business activities and operations. The laws of the land need to be respected and followed. Many a times the rules and regulation are confusing and also keep on changing. The business should keep a tab on the changing laws . Some of the laws Indian companies need to follow are as follows 1) Income tax act,1961 2) Companies Act,1956 3) Labor laws 4) Consumer affair laws Some of the laws are very confusing and many a times results in disputes/court cases between corporate and the government. For example: Case between Vodafone and Govt of India of Tax liability of Rs 11,000 crores After the Enron Scam the SARBANES OXLEY act was passed in 2002 which forced Auditing and Consulting firms to work differently.

Micro environment/Direct Action Environment

Micro-Environment consists of factors in the companys immediate environment which affects the performance of the firm. The micro factors can affect different firms in the same industry differently. Suppliers Customers Competitors Marketing Intermediaries: Financiers Public-

Environmental Scanning & Monitoring

Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage. To sustain competitive advantage the company must also respond to information gathered from environmental scanning by altering its strategies / plans when need arises.

Environmental Scanning & MonitoringTechniques

SWOT
PESTEL

Techniques

Industry Analysis

Competitor Analysis/ Porter 5 force Model

Porters Five Forces Model/Competitor Analysis

Developed by Michael Porter in 1979/1980 Considered a classic industry analysis tool Provides a framework for perspective on multiple competitive factors affecting your company and industry
Five basic competitive forces whose collective strength determines the long-run profit potential of an industry

The Five Forces

Threat of New Entrants/ Barriers to Entry

Bargaining Power of Suppliers

Rivalry Among Existing Competitors

Bargaining Power of Customers

Threat of Substitutes

1) Power of Customers
Power of customers determined by: Number of buyers Firms degree of differentiation Portion of a firms inputs sold to a particular buyer Portion of a buyers purchases bought from a particular firm Switching costs

2) Bargaining Power of Suppliers

Strength of suppliers determined by:
Number of suppliers and their degree of differentiation Portion of a firms inputs obtained from a particular supplier Portion of a suppliers sales sold to a particular firm Switching costs

3) Threat of New Entrants/ Barriers to Entry

Threat of potential entrants determined by:
Attractiveness of industry Height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)
Customer switching costs (high fixed costs involved in switching to another supplier) Capital requirements (e.g., very high in gas exploration) Restrictive government policy

4) Threat of Substitutes
A substitute performs the same function as an industrys product or service, but by different means.
Determined by the number of potential substitutes, their closeness in function and relative price Not just another product: sometimes the substitute is to do without the product or to do it themselves. Skype being used instead of phones . DISH TV vs. traditional Cable .

5) Rivalry Among Existing Competitors

Rivalry determined by number of firms, relative size, degree of differentiation between firms, demand conditions and barriers to exit Competition among rivals is greatest when:
There are many competitors, nearly equal in size or power Slow industry growth High barriers to exit

PESTEL analysis
P Political
The current and potential influences from political pressures

E - Economic
The local, national and world economic impact

S - Sociological
The ways in which changes in society affect the project

T - Technological
How new and emerging technology affects our project / organization

E - Environmental
Local, national and global environmental issues

L - Legal
How local, national and global legislation affects the project

PESTEL
Political:
Government type and stability Freedom of the press, rule of law and levels of bureaucracy and corruption Regulation and de-regulation trends Social and employment legislation Environmental and consumer-protection legislation Likely changes in the political environment

Economic:
Stage of a business cycle Current and projected economic growth, inflation and interest rates Unemployment and supply of labor Labor costs Levels of disposable income and income distribution Impact of globalization Likely impact of technological or other changes on the economy Likely changes in the economic environment

PESTEL
Sociological:
Cultural aspects, health consciousness, population growth rate, age distribution, Organizational culture, attitudes to work, management style, staff attitudes Education, occupations, earning capacity, living standards Ethical issues, diversity, immigration/emigration, ethnic/religious factors Media views, law changes affecting social factors, trends, advertisements, publicity Demographics: age, gender, race, family size

Technological:
Maturity of technology, competing technological developments, research funding, technology legislation, new discoveries Information technology, internet, global and local communications Technology access, licensing, patents, potential innovation, replacement technology/solutions, inventions, research, intellectual property issues, advances in manufacturing Transportation, energy uses/sources/fuels, associated/dependent technologies, rates of obsolescence, waste removal/recycling

PESTEL
Legal:
current home market legislation, future legislation European/international legislation regulatory bodies and processes environmental regulations, employment law, consumer protection industry-specific regulations, competitive regulations

Environmental:
Ecological environmental issues, environmental regulations customer values, market values, stakeholder/ investor values management style, staff attitudes, organizational culture, staff engagement