Understanding Business Environment: Key Features and Impact
The business environment encompasses all external factors influencing a business, including specific forces like owners, creditors, and competitors, as well as general forces like economic, social, and legal aspects. It is dynamic, interrelated, and characterized by uncertainty, requiring managers to adapt to constant changes. The environment's close interdependence and continuous transformation impact businesses in various ways, highlighting the importance of monitoring and responding effectively to external factors.
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3-Business Environment 1. Meaning: It means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. It is the sum total of a number of specific forces and general forces. For eg. Rajat is running a garment shop. Then local residents are specific force and government ban on plastic bags which Rajat uses is general force.
3-Business Environment 1. Features: a. Totality of external forces It is the sum total of all forces/factors which are external to the biz orgs. It includes individuals, institutions and other imp forces.
3-Business Environment 1. Features: b. Specific and general forces It is divided into two categories-general forces and specific forces. Specific forces includes owners, suppliers, creditors, employees, trade unions and competitors General forces includes economic, social, technological, political and legal components.
3-Business Environment 1. Features: c. Inter-relatedness The various components of business environment are very closely interrelated and interdependent. For eg, with an increase in the consumer consciousness about health and hygiene the demand for the packed products have increased tremendously. There is shift in demand towards organic foods, low fat foods, sugar free products, roasted and baked snacks, air purifier, masks etc.
3-Business Environment 1. Features: d. Dynamic nature It is dynamic as it is constantly in the process of transformation The ever changing character of various components of business environment like in change in the governmental policy, availability of better technology, entry of new competitor, shift in the taste and preferences of the consumers doesn t allow the BE to be constant in nature.
3-Business Environment 1. Features: e. Uncertainty It is very difficult for the managers to anticipate future events accurately. This is particularly more prominent in case of information technology and fashion industries where the changes take place too frequently.
3-Business Environment 1. Features: f. Complexity It is very complex in nature as it is made up of a number of interrelated and dynamic situations and forces. It is difficult to find where the effect of one forces ends and another forces starts. For eg, it is difficult to find the exact reason for change in demand for a product in the market due to complex factors.
3-Business Environment 1. Features: g. Relativity Business environment may vary from one country to another country For eg, there is more demand for sarees in India than in US or UK When consumer protection org. found pesticides in cold drink, it came as constraints for cold drinks industry but opportunity for juice industry.
3-Business Environment 3. Importance: a. It enables the firm to identify opportunities and getting the first mover advantage If a business is able to identify a forth coming opportunity and of use it to the best of its advantage it is said to have made the first mover advantage They can go much ahead of competitors For eg, Pepperfry is the first online furniture, Eureka Forbes is the pioneer in water purifiers segment etc.
3-Business Environment 3. Importance: b. It helps the firm to identify threats and early warning signals: The knowledge of the approaching threats enables the business managers to face it in the best possible manner by deciding upon the best course of action in advance For eg, Maruti Udyog company got the information that more foreign car manufacturing companies are going to set up their business in India. They took this as threat and increased their production capacity.
3-Business Environment 3. Importance: c. It helps in coping with rapid changes: The present day business environment is marked by constant changes in various areas like customers are more demanding, frequent changes in technology, globalisation of the world economy. Businessman make changes in their internal environment to match the external environment.
3-Business Environment 3. Importance: d. It helps in assisting in planning and policy formulation: Internal plans and policies are formulated based on the changing environment factors. Scanning of environmental factors helps in finding out the opportunities of business and strategies can be made to grab these opportunities. For eg, on scanning the Indian business environment , businessmen have found that there are growing opportunities in tourism industry. This has resulted in the growth of various hotels in India.
3-Business Environment 3. Importance: e. It helps in improving performance: Businessman makes effort to study and analyse its environment all the time, initiate the necessary changes in its functioning by adopting the best business practices. This will not only improve its present performance but also envision success of the org. in the long run.
3-Business Environment 3. Importance: Identify opportunities Improves performance Identify threats Importance of Business Environment Assists in planning and formulating policy Copes with rapid changes
3-Business Environment 3. Dimensions: Meaning: It refers to all the forces which lie outside the business but have capacity to influence its working in many ways. Social environment Technological Environment Economic environment Dimensions of Business Environment Legal Political environment environment
3-Business Environment 3. Dimensions: Economic Environment Social Environment Political Environment Legal Environment Technological Environments Structure of Economy- capitalist, social, mixed Customs and traditions Constitutions of the country Legislations Level of scientific improvements and innovations in methods of production Economic Development Values GDP and per capita income Interest rates
3-Business Environment 3. Dimensions: Economic Environment Environment Social Political Environment Legal Environment Technological Environments Inflation rates Social trends Political stability and peace Administrative orders Rates of saving and investment Society s expectations from business Volume of imports and exports Population shifts Government policy towards business and industry Balance of payments & changes in foreign exchange reserv Age composition
3-Business Environment 3. Dimensions: Economic Environment Environment Social Political Environment Legal Environment Technological Environments Agricultural and industrial production trends Birth rate and death rate Expansion of infrastructural facilities like communication Ideologies and values of major political parties Court judgements Money supply in the economy Education system and level of literacy Relationship with other countries Methods and techniques of doing a biz. Stock Market Career attitudes
3-Business Environment 3. Dimensions of Business Environment Examples: Economic Environment Environment Environment Social Political Legal Environment Technological Environments Policies to promote FDIs Demand increase during festivals Implementation of new economic policy 1991 SC order that only green crackers in country Growing use of methods of e- payment like Paytm, Google pay Changes in level of Inflation Rise in demand for ready to eat food Implementation of GST Consumer Protection Act 1986 Automation of stock exchanges Stock exchanges fall due to demonetisation Equal pay scales to male and female workers Demonetisation Prevention of Corruption Act 1988 Online shopping, online services Devaluation of rupee Demand for reservation in jobs for minority Frequent visits of PM to diff countries Ban on use of plastic Artificial intelligence in mfg Make in India Increase in Food Safety
