Business environment

BUSINESS ENVIRONMENT

UNIT – 1

BUSINESS AS A SOCIAL SYSTEM

Business is an integral part of social system and it is influenced by other elements of society which, in term, is affected by the business. Today the whole society is a business environment.

Davis and Blomstorm point out that in taking an ecological view of business in a systems relationship with society; three ideas are significant in addition to the systems idea.

The three ideas are:

1. Values

2. Viability

3. Public visibility

1. VALUES:

Business like other social institutions, develops certain belief systems and values for which they stand, and there beliefs and values are a source of institutional drive. These values drive from a multitude source, such as the mission of business as a social institution, the nation in which business is located, the type of industry in which it is active and the nature of employees. These values become guides for employee’s decisions in the interface of business. Second, they become strong motivators for people in a business.

2. VIABILITY

Davis and Blomstorms define viability as the drive to line and grow, to accomplish the potential not yet reached, and to achieve all that a living system is capable of becoming. If a business is to be a viable, vigorous, institution in society, it must initiate its share of forces in its own environment rather than merely adjust to outside forces. Every business needs a drive and spirit all its own to make it as a positive actor on the social stage rather than reactor or a reflector.

3. PUBLIC VISIBILITY

The term public visibility refers to the extent that organizations activities are known to person outside the organization. Public visibility is different from idea of public image. The term public image refers to what people think about an organizations act, while are known. The importance of public visibility is that it subjects business activities to public examination, discussion and judgment.

These are became business is integral part of social system. It is a social organ to help accomplish the social goals.

INTERNAL AND EXTERNAL ENVIRONMENT OF BUSINESS [TYPES OF ENVIRONEMTN]

I. INTERNAL ENVIRONMENT FACTORS

1. Value system: The value systems of the founders and those at the helm of affairs have important bearing on the choice of business, the mission and objectives of the organization, business policies and practices. It is a widely acknowledged fact that the extent to which the value system is shared by all in organization is an important factor contributing to success.

2. Mission and Objectives: The business domain of the company, priorities, direction of the development, business philosophy business policy etc are guided by the mission and objective of the company.

Example: Ranbaxy’s thrust in to the foreign markets and developments have been driven by its mission – “to become a researcher based international pharmaceutical company.”

3. MANAGEMENT STRUCTURE AND NATURE

The organizational structure, the composition of board of directors, extent of professionalization of management etc, are important factors influencing business decisions. Some management structures and styles delay decision making while some other facilitate quick decision making.

The Board of Directors being the highest decision making body which sets the direction for the development of the organization and which oversees the performance of organization, the quality of the Board is a very critical factor for the development and performance of company.

4. INTERNAL POWER RELATION

Factors like the amount of support the top management enjoys from the different levels of employees, share holders, and Board of Directors have important influence on the decision and their implementation. The relationship between the members of the board and between chief executive and the Board are also critical factors.

5. HUMAN RESOURCES

The characteristics of the human resources like skill, quality, morale, commitment, attitude etc., could contribute to the strength and weakness of the organization.

6. COMPANY IMAGE AND BRAND EQUITY

The image of the company matters while raising finance, forming joint ventures or other alliances, soliciting marketing intermediaries, entering purchase on sale contracts, launching new products etc. Brand equity is also relevant in several of these cases.

7. OTHER FACTORS

A) Research and development determine a company’s ability to innovate and compete.

B) Marketing – quality of marketing men, brand equity, distribution network have direct effect on marketing.

C) FINANCE 0 financial policies; financial position and capital structure are also affecting business performances.

D) Physical Assets – production capacity, technology, distribution logistics

EXTERNAL ENVIRONMENT FACTORS

It consists of 2 types.

1. Micro environment

2. Macro environment

I. Micro Environment

The micro environment is also known as the task environment and operating environment became the micro environment forces have a direct bearing on the operations of the firm.

These include the factors like …

1. SUPPLIERS

An 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. The importance of reliable source of supply is for the smooth functioning of business.

It is very risky to depend on a single supplier became of skills, lock out or any other production problem with that supplier may seriously affect the company. Hence multisource of supply often helps reduce risks.

2. CUSTOMERS

A business exist only became and its customers. A company may have different categories of customers like individuals, households, industries and other commercial establishment and govt. and other institution.

3. COMPETITORS

A firm’s competitors include not only other firms which market the same products but also all those who compete for the discretionary income of the consumers.

4. MARKETING INTERMEDIARIES

The immediate environment of the company may consist of number of marketing intermediaries which are “firms that aid the company in promoting, selling and distributing its goods to final buyers.”

The marketing intermediaries includes middlemen such as agents and merchants who “help the company find customers or close sales with them.”

5. FINANCIERS

Another important micro environmental factor is the financier of the company. Besides the financing capabilities, their policies and strategies, attitudes, ability to provide non financial assistance etc are very important.

6. PUBLICS

“A public is any group that has an actual or potential interest in an impact on an organizations ability to achieve its interests.” Media publics, citizen action publics and local publics are some examples.

MACRO ENVIRONMENT

It is also called as general environment and remote environment. The macro environment is generally uncontrollable than micro environment, the success of the company depends on its adaptability to the environment.

The important macro environment factors as follows:

I. TECHNOLOGICAL ENVIRONMENT

Technology is one of the important determinants of success of a firm as well as economic and social development of nation. It includes both hardware and software to solve problems and promote progress.

1. Innovative drive of company

The term innovation means introduction of new product, the use of new method of production. “The technical, industrial and commercial steps which leads to marketing of new products and to commercial use of new technical process and equipment.”

2. Customers Needs / Expectation

Technological orientation and R&D effects of a company may also be influenced by the customer needs and expectation. In several cases the customer and the supplier have a collaborative relationship to develop the product or solutions. If the customers are highly demanding, companies would be compelled to be innovative.

3. Demand conditions

The size of demand influences the choice of the technology . The size of demand influences the choice of the technological scale. Fast growing trend of demand would encourage development of technology of large scale.

4. Suppliers offering

Many times technological changes are encouraged by the suppliers of a company, like a capital goods supplier etc.

5. Competitive dynamics

Competition compels the adoption of the best technology and constant endeavor to innovate.

6. Substitutes

Emergence of new substitutes or technological improvements or substitutes which alter technological change.

7. Social forces

Certain social forces like pretext against environment pollution or other ecological problems demand for eco-friendly products.

8. Research organization

The technological environment of business is enriched by researched organizations which develops new technologies and provide other technical inputs.

9. Govt. policy

The govt. contributes to the development to the technology by its own direct involvement by establishing research organization and funding R & D. The govt. may encourage private R & D by various incentives.

II. DEMOGRAPHIC ENVIRONMENT

The importance of demographic factors to business is clear from the facts that “Management is men” & “Market is people.” i.e., Management in Men, Material, Machinery and Money, and market is people in the sense that the demand depends on the people and their characteristics – the number, income levels, tastes and preferences, beliefs, attitudes and sentiments.

Important demographic bases of market segmentation include the following:

1. Age structure

2. Gender

3. Income distribution

4. Family size

5. Occupation

6. Education

7. Social class

8. Religion

9. Race

10. Nationality

Demographic factors such as size of population, growth rate, age composition, ethnic, density of population, rural – urban distribution, nature of family have very significant implication for business.

III. ECONOMIC ENVIRONMENT

Business partners and strategies are influenced by the economic characteristics. The economic environment includes the structure and nature of the economy, the stage of development of economy, economic resources, level of income, global economic linkages, economic policies etc.

1. Nature of the Economy

The general level of development of the economy has lot of implication for business – it has significant bearing on the nature and size demand, govt. policies affecting business. The widely used method of classification of the economies is on the basis of per capita income. Accordingly the low income, middle and high income economies.

Low income economies are economies with very low per capita income. High income economies are economies with very rich income per capita. Middle income economies are sub divided into lower middle and upper middle income where income per capita is neither very high nor low.

2. Structure of the economy

Factors such as contribution of different structure like primary (agricultural), secondary (industrial) & tertiary (secondary) sectors, large, medicine, small sectors to economy. These factors and the nature of each sector have business implication. For example, India is one of the largest producers of agricultural products, because of the small and fragmented nature of land holdings, efficient collection and processing of products become difficult. The land holding pattern also makes productivity improvements difficult.

3. Economic policies

There are several economic policies which can have very great impact on business. Important economic policies are

a) Industrial policy

It defines the scope and role of different sectors like private, public, joint and cooperative. It may influence the location of industrial undertakings. Choice of technology, state of operation, product mixes etc.

b) Trade policy

It can affect the fortunes of firms. For example a policy of protecting the home industry may greatly help the import competing industries, while liberation of the impart policy may create difficulties for such industries. This mean the firm should come up with quality, cost, and marketing and after sales service etc.

c) Foreign exchange policy

Exchange rate policy and policy in respect of cross border movement of capita are important for business.

d) Foreign investment and technology policy

Foreign investment and technology policy will increase domestic competition at the same time it would benefit many domestic firms – by permitting global sourcing of capital and technology, by increasing the quantity and quality of domestic supply of many goods and services.

e) Fiscal policy

Govt. strategy in respect of public expenditure and revenue can have significant impact on business. The pattern of public expenditure may affect the develop of industries. Such as govt. often use tax incentives or disincentives to encourage or discourage certain activities. For ex: when industry suffers from recession, a reduction of taxes like excise duty or sales tax may help improve the demand.

f) Monetary policy

The central bank, by its policy towards the cost and availability of credit, can significantly influence savings, investments and consumer spending in economy. For example – 1% reduction in cash reserve ratio will significantly increase loan able funds with commercial banking systems.

IV. NATURAL ENVIRONMENT

The natural environment ultimately is the source and support of everything used by business – every raw material, energy resource, life sustaining factor etc.

The natural environment determines what can be got done in a society and how institution can function. Resource availability is the fundamental factor is the development of business in the society.

Thus geographical and ecological factors, such as natural endowments, weather and climatic conditions, topographic factors, vocational aspects in the global context etc., are all relevant to business.

1. Geographical factors: differences in geographical condition between markets may sometimes call for changes in the market mix. It influences the location of some industries.

E.g. Industries with material index tend to be located near the raw material sources.

2. Climatic and weather conditions: It affects the location of certain industries like cotton textile industry. Topographic factors may affect the demand pattern in some cases. E.g. in hilly areas Jeeps are greater demand than cars.

Weather and climatic factors affect the demand of certain types of products. E.g. in region where temperature is very high in summer, there is good demand for desert coolers.

Weather and climatic factors can affect the demand pattern of clothing, building materials, food, medicines etc. further, weather and climatic conditions may call for modification to the products, packaging storage conditions etc.

3. Ecological factors: It assumes great importance, the depletion of natural resources, environmental pollution another disturbance of the ecological balance have carried great concern, govt. policies aimed as preservation of environment purity and ecological balance, conservation of non-replenish able resources have resulted additional responsibilities and problems for business.