Professional Documents
Culture Documents
Dr Subhash Gupta
Meaning of Business Environment
The relationship between business and its environment is one of mutual benefit
and therefore, it has been shown as a two-way relationship in Figure. This may
be referred to as a ‘symbiotic relationship’ as business functions in such a way
that it both takes from and gives nurture to the various segments of its
environment. Only through such a relationship, a business can survive and
prosper.
Social Political
System System
Including Including
Moral Legal
Business
Scientific
And
Technology Economic
System System
Macro Political
Environ-
mental Internal Buyers
Suppliers
Social
New New
Substitutes Entrants
Legal
Technological
The Micro and Macro Environment
Macro Business Environment Model
Socio-Cultural Factors Political and Govt. Factors
Micro Business Environment Model
Competitors
Regulating
Agencies
Business
Business
Associates
Economic Factors International Factors
Technological Factors
Types of Environment
Environmental Factors and their Features
Macro Environment
1. ECONOMIC ENVIRONMENT
b. Economic Conditions
c. Economic Systems
d. Economic Policies
(i) Budgets, (ii) Industrial Regulations, (iii) Economic Planning, (iv) Import & Export Regulations, (v)
Business laws, (vi) Industrial Policy, (vii) Control on Prices and Wages, (viii) Trade and Transport
Policies, (ix) The size of the National Income,
(x) Demand and Supply of various goods
The important acts are
(i) Factories Act, (ii) Industrial Disputes Act, (iii) FERA, (iv) Imports and Exports Act,
(v) Companies Act, (vi) Industries Act.
d. Economic Growth
e. Interest Rates
f. Currency Exchange Rates
g. Inflation Rates
2. POLITICAL AND GOVERNMENT ENVIRONMENT
a. Legislature
b. Executive
c. Judiciary
3. SOCIO CULTURAL ENVIRONMENT
a. people’s attitude to work and health
b. Role of family
c. Marriage
d. Religion
e. Education
f. Ethical issues
g. Social responsibility of business
4. NATURAL ENVIRONMENT includes
a. Natural resources endowments
b. Weather & climate conditions
c. Topographical factors
d. Location aspects
e. Port facilities etc.
Almost every aspect of business depends upon natural environment. For
example.
(i) Manufacturing depends on physical inputs
(ii) Mining and drilling depends on natural deposits
(iii) Agriculture depends on nature
(iv) Trade between two nations depends on geographical factors
(v) Transport and communication depends on geographical factors
(vi) Topographical factors may affect the demand pattern
5. DEMOGRAPHIC ENVIRONMENT includes
a. Size, growth rate, age composition, sex composition etc. of population
b. Family size
c. Economic stratification of population
d. Educational level
e. Caste, religion etc.
INTERNATIONAL ENVIRONMENT
• Peace dividend
• Rising real incomes
• Ageing population
• Physical resource depletion
• Green concerns
• Economic turbulence
• Clash of Civilisations
Forces Driving Industry Competition
INDUSTRY ANALYSIS
FIVE FORCES
• (1) BARRIERS TO ENTRY
– Economies of Scale
– Technology
– Patents
– R&D spend
– Controlled Supply
– Government Protection
– Specialist Knowledge
INDUSTRY
ANALYSIS
● FIVE
(2) INTENSITY FORCES
OF RIVALRY
●Number of Existing Competitors
●Similarity
●Exit Barriers
●Slow Industry Growth
●Type and Diversity of Competitors
●Strategic Stakes
● (3) SUBSTITUTES
INDUSTRY
ANALYSIS
FIVE FORCES
● (4) POWER OF BUYERS
Buyers Low Profits
Buyers Low Switching Costs
Buyers Total Material Costs
● (5) POWER OF SUPPLIERS
Concentration
Few Substitutes
Customer Importance
Crucial Product
INDUSTRY
ANALYSIS
FIVE MORE FORCES
● POTENTIAL RATE OF GROWTH
● STRUCTURE OF DEMAND
● TECHNOLOGICAL SOPHISTICATION
● RATE OF INNOVATION
● MANAGERIAL CAPABILITY
Benefits of Environmental
Analysis
1. Environmental analysis gives an idea of organization's
environment.
2. Environmental analysis gives a brief about competitors.
3. Environmental analysis tells us about opportunities to
reap profits.
4. Environmental analysis gives details about threats in the
environment.
5. Environmental analysis keeps the manager informed and
alert.
6. Business is all about making the right decision at the right
time. Without proper environmental analysis, the right
decision can't be made.
7. Environmental analysis helps in predicting the future.
8. Environmental analysis helps in suitable modification of
strategies, as and when required.
Limitations of Environmental
Analysis
1. Today the environment is turbulent and dynamic and it is
difficult to forecast or predict the environment.