2012

INTRODUCATION TO BUSINESS ENVOIRMENT

MANISH KUMAWAT AEGIS SCHOOL OF BUSSIENSS & TELCOM 4/15/2012

Q1. What is business? Describe the different characteristics of Business?

ANS:

Human beings are continuously engaged in some activity or other in order to satisfy their unlimited wants. Every day we come across the word 'business' or 'businessman' directly or indirectly. Business has become essential part of modern world.Business is an economic activity, which is related with continuous and regular production and distribution of goods and services for satisfying human wants.

Definition: Stephenson defines business as: "The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants." According to Dicksee, "Business refers to a form of activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted." Lewis Henry defines business as: "Human activity directed towards producing or acquiring wealth through buying and selling of goods."Thus, the term business means continuous production and distribution of goods and services with the aim of earning profits under uncertain market conditions. The chief characteristics of the business are:

Creation of utilities: Business denotes creation of utility and service for satisfaction of human wants. Business helps in the creation, distribution and production of utilities. Recurring activities: Business activities are recurring in nature. Recurring purchase and sales are regarded as identifying marks of the business. Transfer of title: The goods produced or purchased by the business are made with the intention of sale or transfer of title from the seller to the buyer. Because of this reason goods acquired for the sake of personal consumption are excluded from business. Mutual benefit: Business activities are not sided affairs because both the parties are benefited. The buyer gets the benefit of having the goods and the seller gets the benefit of having money. Expectation of earning: Business provides a way of living to the businessman because he intends to earn profit.

Q2. What do you mean by business in 21st Century? Why business environment has to be scanned? ANS: It has often been said that the only constant in life is change, and nowhere is this more true than in the workplace. As one recent survey concluded, "Over the past decade, the U.S. corporation has been battered by foreign competition, its own out-of-date technology and out-of-touch management and, more recently a flood of mergers and acquisitions. The result has been widespread streamlining of the white-collar ranks and recognition that the old way of doing business is no longer possible or desirable" (U.S. News & World Report, 1989, p. 42). As the twenty-first century approaches, companies face a variety of changes and challenges that will have a profound impact on organizational dynamics and performance. In many ways, these changes will decide who will survive and prosper into the next century and who will not. Among these challenges are the following: The The The The The The challenge challenge challenge challenge challenge challenge of of of of of of international competition. new technologies. increased quality. employee motivation and commitment. managing a diverse workforce. ethical behavior.

Environmental scanning: is one component of the global environmental analysis. Environmental monitoring, environmental forecasting and environmental assessment complete the global environmental analysis. Environmental scanning refers to the macro environment. The global environment refers to the macro environment which comprises industries, markets, companies, clients and competitors. Consequently, there exist corresponding analyses on the micro-level. Suppliers, customers and competitors representing the micro environment of a company are analyzed within the industry analysis. Importance of Business Environment: The competent and successful management must be capable of adapting to the environment. The knowledge of the environment helps in: Capitalizing emerging opportunities Activating management Image building Basis of strategy Intellectual stimulation Continuous learning

Capitalizing early opportunities: Environment friendly enterprise are the first movers to avail of the existing opportunities of resources to grab the market. These enterprises do not loose emerging opportunities to their competitors. For example: Asian pains have been loosing their market to Good lass Nerolac because of their failure to match their technology with Cathodic Electro Deposition (CED) technology, which helped the competitor to grab the opportunity of meeting 90% paint requirement of Maruti Udyog. Activating management to changing needs: The knowledge of environmental changes sensitizes the management to make strategy to cope with the emerging problems. For example: The turmoil in the

USSR resulted in the loss of market to many companies like Hoechst. In order to meet the situation Hoechst divested its manufacturing facility in favors of IPCA Laboratories Ltd. Image building: Environmental understanding by the management builds image of the company in the minds of the people. They feel that the company is sensitive and responsive to their needs and problems. For example: G. E is said to be image conscious. It divested its computer and airconditioning business because they could not attain 1st or 2nd position in the business as per their policy. Now they are snickering to out sourcing in India, aircraft engineering, plastic etc. Basis of strategy: Strategists can gather qualitative information regarding business environment and utilizing them in formulating effective plants. For example: ITC Hotels foresaw bright opportunities in the travel and tourism industry and started building hotels in India and abroad. Intellectual stimulation: Knowledge of environment changes provides intellectual stimulation to planners and decision-making authorities. They can do it by paying more attention to people by listening to their problems and suggestion. They can also eliminate procedure complexities in a visible way. The drastic and dynamic steps will definitely keep the company better placed. Continuous learning: Environmental scanning provides continuing broad based learning to is executives. Reliance adopted the policy of decentralization and empowered their managers to close the deal themselves even regarding price. In 1993 managers were require to chat with the proprietress on alternate days for 15 minutes. The process made them so competent that now the managers are required to chat only three times in a month. It shows that continuous learning made the managers competent to take independent decision. Your Eight Strategic Radar Screens: Figure 2-1 shows a conceptual breakdown of the business environment into eight generic subenvironments. By studying the goings-on in each of them, and connecting the lessons of all of them into a unified picture, we can build a solid basis in fact and a reasonable basis for speculation about what's going to happen to the players in the competitive arena.

Q3. What do you mean by environment? What are its components?

ANS: The word environment has been derives from the French word which means to surround. Thus, environment refers to the sum total of conditions which surround man at a given point of space and time. It is a composite term for the conditions in which organism live. In other words environment is the totality of all physical, social and biological factors that comprise the natural and manmade surroundings Components of environment : can be analyzed at various levels: At the level of activities, at the level of processes, and at the level of orientations. Some of these issues and examples are discussed below. As discussed in the earlier section in one of the UNESCO reports, the following activities have been suggested as components of environmental quality. Fire protection. Comfort of home. Electric service. Privacy in your home. Relation with fellow workers. Postal service. Availability of food around your living place. Convenience for getting to important places. Noise level in the home setting. Beauty of your home. Amount of open space around. Access to parks. Control of dogs and other pets. Cost of living.

Q4. What are the types of sins that a business organization can commit?
ANS:

Following are sin that and organization can commit for the various reasons:

1) Business Espionage Lifted from the pages of Ian Flemings James Bond, there are many spies in the world of business hoping sift out important corporate trade secrets that may benefit their own business agendas. Some of them pretend to be customers or clients but interested in the important details on how you run and manage your business. 2) Cold Treatment: Professional and confidential communication line is essential in business transactions and correspondences but not answering clients and customers after initial e-mail exchanges, telephone conversations, and business information sharing is not a good business practice. Making excuses of being out of the office for business trips and other alibis. 3) Fake customer testimonials Getting favorable reviews and testimonials can boost business reputation and reliability. No wonder, some businesses fake it to gain advantage over the competitors. Promoting that their products and services is effective through made-up customer success stories is an unethical business practice because it is just blatantly duping customers into buying it. 4) Promising something better and new: Some companies want to be seen as hip, innovative, and trendsetter by promising new and better products and services. Many purported revolutionary products and services that are promised to outdo everything by the competition may be just the same thing they do but with a different packaging and branding. Perhaps, some are just empty promises and products of imagination. 5) Shady Contracts and Delinquent Payments: Contracts are important business documents and changing it frequently and not paying the dues agreed upon are mortal sins in business transactions. Unfortunately, settling business debts may take a while as every legal action may drag your resources with it. You can hire lawyers and debt collection agents to enforce the contract but dont expect to get it right away. 6) Dubious Funding Claims: Being perceived as a financially-stable company is enough to convince most investors and clients to do business but making dubious funding claims is a whole different story. An unethical business would do it in order to convince the board directors that the finances are in order and there is a steady capital infusion from investors. Unfortunately, many companies go bankrupt when playing this hide and seek game of financial management.

7) Bad Use of Stock Options: Any small businesses and start-up companies would use stock option grants as payment for services. But using it in a different way may bring your company into trouble and possible lawsuits over contractual obligations and unethical business conveyances. 8) Breach of Contract: There is no better way to describe bad business practices as breach of contract. Getting a long-term commitment from a client and investors is a big boost to your companys business profile but terminating a contract abruptly for made up reasons can spark legal actions from them.

Q5. Explain the Features of Business and Importance & Needs of Business? ANS: Features of business are discussed in following points: Exchange of goods and services: All business activities are directly or indirectly concerned with the exchange of goods or services for money or money's worth. Deals in numerous transactions: In business, the exchange of goods and services is a regular feature. A businessman regularly deals in a number of transactions and not just one or two transactions. Profit is the main Objective: The business is carried on with the intention of earning a profit. The profit is a reward for the services of a businessman. Business skills for economic success: Anyone cannot run a business. To be a good businessman, one needs to have good business qualities and skills. A businessman needs experience and skill to run a business. Risks and Uncertainties: Business is subject to risks and uncertainties. Some risks, such as risks of loss due to fire and theft can be insured. There are also uncertainties, such as loss due to change in demand or fall in price cannot be insured and must be borne by the businessman. Buyer and Seller: Every business transaction has minimum two parties that is a buyer and a seller. Business is nothing but a contract or an agreement between buyer and seller. Connected with production: Business activity may be connected with production of goods or services. In this case, it is called as industrial activity. The industry may be primary or secondary.

Marketing and Distribution of goods: Business activity may be concerned with marketing or distribution of goods in which case it is called as commercial activity. Deals in goods and services: In business there has to be dealings in goods and service. Goods may be divided into following two categories:-Consumer goods: Goods which are used by final consumer for consumption are called consumer goods e.g. T.V., Soaps, etc.Producer goods : Goods used by producer for further production are called producers goods e.g. Machinery, equipments, etc. Services are intangible but can be exchanged for value like providing transport, warehousing and insurance services, etc. To Satisfy human wants: The businessman also desires to satisfy human wants through conduct of business. By producing and supplying various commodities, businessmen try to promote consumer's satisfaction.

Social obligations: Modern business is service oriented. Modern businessmen are conscious of their social responsibility. Today's business is service-oriented rather than profit-oriented.

Importance and Need of business:

The importance of business is that it provides products or services to customers. These products or services in the present day world are provided by entrepreneurs who organize, manage and assume the risk of starting businesses mainly for earning profit. Business makes the best possible use of scarce resources such as men, machines and materials for the production of goods. The importance of business can be judged from the following activities undertaken by the business. 1. Production of goods The raw material producing industries such as agriculture, mining, forestry, fishing, etc., provide raw materials for the manufacturers of consumer and producer goods. For instance, agriculture provides food such as grains,Vegetables. Mines provide metals which are used in factories and firms. Coal, another product is a very useful source of power Forestry, provides us timber which is needed r the construction of building, furnitures, paper, etc. 2. Distribution aspect of business The distribution aspect of business is very complex. The goods which are produced should reach the consumers at the right place, right time and at right price also. Business due to self-interest of earning profits provides goods to the people both within and outside the country. The transport industries facilitate the movement of goods from one place to another where they are wanted. Finance, banking and insurance greatly contribute in the financing of business. Without banks, investment and insurance companies, commerce and industry would not have developed on an extensive scale. 3. Business supplies services Services occupy an important place in business life. Though the service organizations do not contribute directly in the production of goods but they facilitate in the production and distribution of goods to the customer& The major services which arc growing in importance with each passing year are banking and finance, insurance, medical and health] Legal, engineering and other professionals, host, domestic servants, education, automobile repairs. etc., etc, the services which perform simple or difficult tasks for earning money are regarded an important part of business. Business has helped in raising standard of living Business has helped people to earn a living either as owners of business or as employees. The mass production of standard goods! Specialization, automation has increased the incomes of those who are directly or indirectly engaged in business. Higher incomes have led to the increase in the standard of living of the people. Business also pays a large share of taxes to a government Creation of customers The business of today is creating markets for its customers all over the world by introducing new products, new methods of distribution such as e-commerce, teleshopping etc.

Q6. Explain the Different Types of Business Economics?

ANS: In the world of today there are three major types of economies. Traditional economies are dictated by tradition, customs, and, to a large extent, religion. As time goes on this type of economy is becoming more and scarcer. Command economies, such as the former Soviet Union, North Korea, and Cuba, have a central government that controls just about everything in the society. The third and final major economy is the market economy. This is a mostly free economy, where the central government is weak and the businesses do as they please to make a profit. Each of these economies has many positive and negative aspects Types of Economies An economy is a system whereby goods are produced and exchanged. Without a viable economy, a state will collapse. There are three main types of economies: free market, command, and mixed. The chart below compares free-market and command economies; mixed economies are a combination of the two.

Free-Market Economies Usually occur in democratic states Individuals and businesses make their own economic decisions.

Command Economies Usually occur in communist or authoritarian states The states central government makes all of the countrys economic decisions.

FREE-MARKET VERSUS COMMAND ECONOMIES Free-Market Economies: In free-market economies, which are essentially capitalist economies, businesses and individuals, have the freedom to pursue their own economic interests, buying and selling goods on a competitive market, which naturally determines a fair price for goods and services. Command Economies: A command economy is also known as a centrally planned economy because the central, or national, government plans the economy. Generally, communist states have command economies, although China has been moving recently toward a capitalist economy. In a communist society, the central government controls the entire economy, allocating resources and dictating prices for goods and services. Some noncommunist authoritarian states also have command economies. In times of war, most stateseven democratic, free-market statestake an active role in economic planning but not necessarily to the extent of communist states. Example: During World War II, the United States largely took control of the American economy, forcing businesses to build tanks, planes, and ammunition instead of normal consumer goods. Supplies were also rationed. For example, to buy more toothpaste, people were obliged to return the empty tube because metal was in short supply. Command economies are often very inefficient because these economies try to ignore the laws of supply and demand. In most cases, a black market arises to fill the demands overlooked by the central plan. Economic growth overall is often slower than in states with free markets. Some command economies claim to act to promote economic equality, but often the elites in the government live far better than others. The Triumph of Capitalism: Although command economies were once considered viable alternatives to free-market capitalist economies, poor economic performance in countries with planned economies proved that capitalism was much more efficient. The former Soviet Unions centrally planned economy performed so poorly, for example, that the government literally collapsed in 19901991. North Koreas command economy

also failed completely more than a decade ago, causing rampant starvation, which has been alleviated only by international food donations. Chinese leaders, in contrast, recognized more than twenty years ago that the centrally planned economy could not meet their nations needs, which is why they have privatized agricultural production and many other industries. China has since legalized the ownership of private property and courted massive amounts in foreign investments, despite the fact that the state remains severely authoritarian. Mixed Economies A mixed economy combines elements of free-market and command economies. Even among freemarket states, the government usually takes some action to direct the economy. These moves are made for a variety of reasons; for example, some are designed to protect certain industries or help consumers. In economic language, this means that most states have mixed economies. Example: Agricultural subsidies, which exist in many countries (including the United States), are a common way governments intervene in the economy. In some cases, these policies are designed to keep food prices low without bankrupting farmers. In other cases, they work to protect domestic agriculture. Even the price of milk is strongly influenced by government policy in the United States.

Q7. Explain the Business in 21st Century: E-Commerce and Explain the Types of ECommerce?
ANS: E-commerce: The use of the Internet and the Web to transact business. More formally, we focus on digitally enabled commercial transactions between and among organizations and individuals. Each of these components of our working definition of e-commerce is important. Digitally enabled transactions include all transactions mediated by digital technology. For the most part, this means transactions that occur over the Internet and the Web. Commercial transactions involve the exchange of value (e.g., money) across organizational or individual boundaries in return for products and services. Exchange of value is important for understanding the limits of e-commerce. Without an exchange of value, no commerce occurs.

TYPES OF E-COMMERCE There are a variety of different types of e-commerce and many different ways to characterize these types. Table 1.3 lists the five major types of e-commerce: Business-to-Consumer (B2C) E-commerce The most commonly discussed type of e-commerce is Business-to-Consumer (B2C) e-commerce, in which online businesses attempt to reach individual consumers. Even though B2C is comparatively small ($140$170 billion in 2005), it has grown exponentially since 1995, and is the type of ecommerce that most consumers are Likely to encounter. Within the B2C category, there are many different types of business models. Business-to-Government (B2G) e-commerce can be considered yet another type of e-commerce. For the purposes of this text, we subsume B2G e-commerce within B2B e-commerce, viewing the government as simply a form of business when it acts as a procurer of goods and/or services Eg: portals, online retailers, content providers, transaction brokers, market creators, Service providers and community providers.

Business-to-Business (B2B) E-commerce: Business-to-Business (B2B) e-commerce, in which businesses focus on selling to other businesses, is the largest form of e-commerce, with over $1.5 trillion in transactions in the United States in 2005. There was an estimated $13 trillion in Business-to-business exchanges of all kinds, online and offline, in 2002, suggesting that B2B ecommerce has significant growth potential (eMarketer, Inc., 2003). The ultimate size of B2B ecommerce could be huge. There are two primary business models used within the B2B arena: Net marketplaces, which include e-distributors-procurement companies, exchanges and industry consortia, and private industrial networks, which include single firm networks and industry-wide networks. Consumer-to-Consumer (C2C) E-commerce: Consumer-to-Consumer (C2C) e-commerce provides a way for consumers to sell to each other, with the help of an online market maker such as the auction site eBay. Given that in 2005, eBay generated more than $44 billion in gross merchandise volume around the world, it is probably safe to estimate that the size of the global C2C market in 2006 will be over $50 billion (eBay, 2006). In C2C e-commerce, the consumer prepares the product for market, places the product for auction or sale, and relies on the market maker to provide catalog, search engine, and transaction-clearing capabilities so that products can be easily displayed, discovered, and paid for. Peer-to-Peer (P2P) E-commerce: Peer-to-peer technology enables Internet users to share files and computer resources directly without having to go through a central Web server. In peer-to-peers purest form, no intermediary is required, although in fact, most P2P networks make use of intermediary super servers to speed operations. Since 1999, entrepreneurs and venture capitalists have attempted to adapt various aspects of peer-to-peer technology into Peer-to-Peer (P2P) e-commerce. To date there have been very few successful commercial applications of P2P ecommerce with the notable exception of illegal downloading of copyrighted music. Mobile Commerce (M-commerce): Mobile commerce, or m-commerce, refers to the use of wireless digital devices to enable transactions on the Web. m-commerce involves the use of wireless networks to connect cell phones, handheld devices such Blackberries, and personal computers to the Web. Once connected, mobile consumers can conduct transactions, including stock trades, in-store price comparisons, banking, travel reservations, and more. Thus far, m-commerce is used most widely in Japan and Europe (especially in Scandinavia), where cell phones are more prevalent than in the United States; however, as discussed in the next section, m-commerce is expected to grow rapidly in the United States over the next five years.

Q8. Explain the Objectives and Benefits of E-Commerce?

ANS: OBJECTIVE e-COMMERCE: Ecommerce eliminates geographical barriers and the difference between day and night in different areas and is improve communication and extensive national and international economy. Electronic commerce is changing the way business and this is a traditional form into newer markets. While ecommerce and especially of the Internet has caused significant changes in competitive conditions (For example, the rapid advent of new competitors, competition, globalization, intense competition in standards, etc.) has created new opportunities for alternative business, create jobs and new job opportunities in various fields. the main difference between e-commerce and traditional commerce is a way to exchange information, In traditional commerce can transfer data through the ommunication face to face or by telephone and postal system to the maximum and monetary transactions are done through a bank or cash but in e-commerce operation is done by computer network and all business processes are done through the Internet platform

ADVANTAGES AND DISADVANTAGES OF ECOMMERCE The invention of faster internet connectivity and powerful online tools has resulted in a new commerce arena Ecommerce. Ecommerce offered many advantages to companies and customers but it also caused many problems. ADVANTAGES OF ECOMMERCE Faster buying/selling procedure, as well as easy to find products. Buying/selling 24/7. More reach to customers, there is no theoretical geographic limitations. Low operational costs and better quality of services. No need of physical company set-ups. Easy to start and manage a business. Shorten the time of shipping International advertising reduce the cost Ease of communication Cost Saving Increase the welfare level of people's lives Facilitate access to global markets Increased choice for consumers Increased efficiency and effectiveness in customer service Customers can easily select products from different providers without moving around physically. DISADVANTAGES OF ECOMMERCE Any one, good or bad, can easily start a business. And there are many bad sites which eat up customers money. There is no guarantee of product quality. Mechanical failures can cause unpredictable effects on the total processes. As there is minimum chance of direct customer to company interactions, customer loyalty is always on a check. There are many hackers who look for opportunities, and thus an ecommerce site, service, payment gateways, all are always prone to attack.

Q9. Explain the Concept and Components of Environment?

ANS: E-commerce concept:

In today's electronically connected world, growing and life is Package in which are very rapidly moving and the transmission of packets is the same as sending and receiving data from audio and video files to buying and selling goods. Electronic commerce refers to the process of buying, selling, transferring or exchanging products, services or information via computer networks including the Internet. Electronic Commerce can also be defined from this perspective:

Communication: In terms of communications, electronic commerce is the means to deliver the

goods, services, information or payments over computer networks or any other computer device.

Business: The business perspective, electronic commerce offers to buy and sell products, services
and information on the Internet and through other online services.

Service: a service perspective, EC is a tool that has been in operation for the purposes of
governments, institutions, consumers and managers, Reduce service costs and at the same time, increased quality and customer service and helps accelerate the delivery time.

Education: The educational perspective and e-commerce may be made online learning helps to teach in schools, universities and other organizations including commercial entities. Participation: Participation of view is an electronic commerce framework for cooperation within
the organization and among different organizations According to the Commission Europe 1997: E-commerce is based on processing and transmitting electronic data including text, audio and video. Electronic commerce encompasses a variety of activities such as electronic funds transactions, electronic stock exchange, an electronic bill of lading, commercial projects, government purchases, direct marketing and after sales service.

E-commerce components:
If the EC considers it as a phenomenon of the identified components. Miller knows the components of ecommercein three parts: Organization is responsible for supporting business processes. to produce goods and services and provide the necessary financial resources. Bank: Bank supports the process and pays the deposit and will facilitate the electronic payment systems.

Marketing: Marketing, collect information about markets and customers and to record the purchase and sale contracts.

Kaiser (1997) considers the interaction of three components of e-commerce. These are three
components: Processes: processes including marketing, sales, payments, orders and provide support Institutions: including government, intermediaries, consumers and suppliers Networks: including corporate intranets, the Internet and commercial networks.

Q10. Explain Environment Scanning and Need and Technologies of Environment Scanning? ANS:
Environmental scanning is one component of the global environmental analysis. Environmental monitoring, environmental forecasting and environmental assessment complete the global environmental analysis. Environmental scanning refers to the macro environment. The global environment refers to the macro environment which comprises industries, . markets, companies, clients and competitors. Consequently, there exist corresponding analyses on the micro-level. Suppliers, customers and competitors representing the micro environment of a level. micro company are analyzed within the industry analysis. Importance of Business Environment: The competent and successful management must be capable of adapting to the environment. The knowledge of the environment helps in: Capitalizing emerging opportunities ing Activating management Image building Basis of strategy Intellectual stimulation Continuous learning

Importance of Environment Scanning: 1. Effective Utilization of Resources For success of business, it is very necessary to effective use of its resources without any wasting. With environment scanning, we can find company's weak points and other risks. After this, company can make good plans and policies for removing all these weak points and other risks. After this, it is sure; company will succeed in his life. 2. Constant Monitoring of the Environment For success, it is also necessary to monitor the environment. After constant monitoring of the environment, we can face the problems due to internal and external factors and solve it on the time.

Techniques of Environment scanning: 1) SWOT Analysis SWOT (Strengths and Weaknesses, and Opportunities and Threats) is a basic analytical tool in management that has become popular in recent years. SWOT analysis is often used by strategic planners and top management in developing competitive strategies. It is typically used to decide corporate strategies and to make product or market level analyses (Reddy 1994). SWOT is a widely used thinking framework for identifying Strengths, Weaknesses, Opportunities and Threats. It enables key factors to be visibly recorded as a high-level summary of a business. SWOT analysis is a summary that is simple but powerful. The technique is commonly used by consultants to document the key factors arising from the review of a particular project or business. The use of SWOT enables an assessment to be made of the overall internal state of a business and the direction in which it is heading, through looking at its Strengths and Weaknesses. It also enables a judgment to be made about aspects of the external business environment, which can affect the performance of the business, through looking at the Opportunities and Threats it faces in the wider world (Elkin 1998). The SWOT analysis on its own is not a strategy. It is merely a tool that helps an organization in making informed decisions.. 2) PEST Analysis A PEST analysis looks at the Political, Economic, Social and Technological drivers of a particular industry. PEST is external factors that must be analyzed and understood in order for an organization to succeed. The PEST analysis focuses on the external forces that affect the organization. It is most useful when used together with other tools such as the SWOT analysis. Political Factors may have direct or indirect impact on the organizations operation. Decisions made by the government may have an effect on the business. The political arena has a big influence on how organizations operate the purchasing power of the customers and other businesses. Economic Factors the organization is affected by economic factors. Economy also affects the purchasing power and behavior of the consumers. Sociological Factors include the demography, lifestyle, cultural aspects of the consumers. These factors have a big influence on the consumer needs and wants. Sociological factors also affect the size of potential markets. Technological Factors technological change plays an important role in shaping how organizations operate. Technological factors are important in gaining competitive advantage. Technological innovations can improve production efficiency, quality and speed. New technology is changing how organizations operate. 3) Porters Five Forces Analysis Porter identified the five forces model of competitive strategy. He identified the five forces as: The threat of new entrants and the appearance of new competitors The degree of rivalry among existing competitors in the market The bargaining power of buyers

 The bargaining power of suppliers The threat of substitute products or services which could shrink the market The strength of each of these forces varies from industry to industry, buttaken together they determine long-term profitability. They help shape the process firms can charge, the costs they must pay for resources and the level of investment that will be needed to compete. The threat of new entrants limits market share and profit; powerful buyers or suppliers, using their superior bargaining power, can drive down prices or push costs up, eroding margins and so on (Witzel 2003). The five factors affect the strategy of the organization. It is important to analyze and study these five forces to be able to craft a successful strategy. To be successful, the organization must respond effectively to the pressures of these five forces.