1. BUSINESS
ENVIRONMENT,
DOCUMENT
AND
POLICY

2. MEANING AND CONCEPT
Its is the combination of words:
Business (represents the organized efforts of
enterprise to supply goods/services to consumers)
+
Environment (includes the factors which can lead
to opportunities for or threats to the firm)
The BE encompasses all conditions,
circumstances and influence surrounding
which affecting the development of an
organization.

3. NEED AND IMPORTANCE
Helps firms to identify opportunities
and getting the first mover advantage.
(eg.Maruti Udyog,Tata NANO).
Helps firm to identify threats and early
warning signals.
(eg.MNC entering to Indian mkt. ).

4. NEED AND IMPORTANCE
Helps to Cope-up with rapid change.
Improves performance that leads to
long term success.
Helps in gathering qualitative
information that can be utilized in
formulating effective strategy/plan.

5. COMPONENTS
1. INTERNAL ENVIRONMENT
All those factors which are present within
the business itself and are controllable.
These are:
 Culture and value system
 Objective
 Organizational structure
(hierarchical relationship)
 Human resource

6. COMPONENTS
2. External Environment
All those factors which exist outside
the business and are usually out of
control of the business.
External environment is further divided
into two parts:
1. Micro Environment
2. Macro environment

7. 1. Micro Environment
That environment which includes those
factors with which business is closely
related. These are:
Customer
Suppliers (no.of suppliers)
Competitors (bringing new product)
Public (opposing the noisy business, favourable
reports by media/press)
Marketing intermediaries

8. MACRO ENVIRONMENT
DEMOGRAPHIC
(decides the type of
pdt,cost)
POLITICAL/LEGAL
(companies act,
MRTP act, consumer
prtcn act etc.)
SOCIO-CULTURE
(belief,values,cons-
-umer taste)
TECHNOLOGICAL
(tech.advancement
,rate of obsolesce)
GLOBAL
(business relationship
across the border)
ECONOMIC
(economic structure of
the country, change in
the economic policy)
BUSINESS

9. PORTER’S FIVE FORCES MODEL
Porter’s Model is actually a business strategy tool that
helps in analyzing the attractiveness in an industry
structure. It let you access current strength of your
competitive position and the strength of the position that
you are planning to attain.
Porter’s Model is considered an important part of
planning tool set. When you’re clear about where the
power lies, you can take advantage of your strengths
and can improve the weaknesses and can compete
efficiently and effectively.
Michael Porter’s model of competitive forces assumes
that there are five competitive forces that identifies the
competitive power in a business situation.

10.  Threat of substitute
products
 Threat of new
entrants
 Intense rivalry
among existing
players
 Bargaining power
of suppliers
 Bargaining power
of Buyers

11. A. THREAT OF SUBSTITUTE PRODUCTS
Threat of substitute products means how easily your
customers can switch to your competitor’s product. Threat of
substitute is high when:
There are many substitute products available.
Customer can easily find the product or service that
you’re offering at the same or less price.
Quality of the competitor’s product is better.
Substitute product is by a company earning high profits
so can reduce prices to the lowest level.
Eg.: TV transmission , Kodak and Fuji photo film

12. B. THREAT OF NEW ENTRANTS
Threat of new entry depends upon entry and exit barriers. Threat of
new entry is high when:
Capital requirements to start the business are less.
Customers can easily switch (low switching cost).
Your key technology is not hard to acquire or isn’t protected
well.
Your product is not differentiated.
That segment is more attractive which has high entry barriers and
low exit barriers.
The worst condition is when entry barriers are low and exit barriers
are high then in good times firms enter and it become very difficult
to exit in bad times.

13. C. INDUSTRY RIVALRY
Industry rivalry mean the intensity of competition
among the existing competitors in the market. Intensity of
rivalry depends on the number of competitors and their
capabilities. Industry rivalry is high when:
There are number of small or equal competitors and
less when there’s a clear market leader.
Customers have low switching costs.
Industry is growing.
Exit barriers are high and rivals stay and compete.
Fixed cost are high resulting huge production and
reduction in prices.
These situations make the reasons for advertising
wars, price wars, modifications, ultimately costs
increase and it is difficult to compete.

14. D. BARGAINING POWER OF SUPPLIERS
Bargaining Power of supplier means how much your
supplier have control over increasing the Price of supplies.
Suppliers are more powerful when :
Suppliers are concentrated and well organized
(Drug industry relationship to hospitals)
A few substitutes available to supplies
Their product is most effective or unique
Switching cost, from one suppliers to another, is high
You are not an important customer to Supplier
. It is best way to make win-win relation with suppliers.
It’s good idea to have multi-sources of supply.

15. E. BARGAINING POWER OF BUYERS
Bargaining Power of Buyers means, How much control the
buyers have to drive down your products price, Can they work
together in ordering large volumes. Buyers have more
bargaining powerwhen:
Few buyers chasing too many goods
Buyer purchases in bulk quantities
Product is not differentiated
Buyer’s cost of switching to a competitors’ product is low
Shopping cost is low
Buyers are price sensitive
Buyer’s bargaining power may be lowered down by offering
differentiated product. If you’re serving a few but huge
quantity ordering buyers, then they have the power to order
you.

16. ECONOMIC ENVIRONMENT
It includes the economic conditions of the
country .The main factors that affects EE
are:
Economic system
Economic conditions
Economic Policy

17. ECONOMIC SYSTEM
These system serves to explain whether
businesses are privately owned or
government owned, or if there is a
combination of private and govt.
ownership. Basically three systems can
be identified:
1. Capitalism
2. Communism/socialism
3. Mixed economy

18. 1. CAPITALISM
It refers to that economic system in which
factors of production are privately owned or in
individual hands . They are free to use them to
earn profit . The main features are:
Right to private property
Freedom of choice by consumers
Profit motive
Importance of Price system
Competition

19. There is hardly any country that can be
called capitalist in a true sense.
Though countries like US,UK, Japan,
south Korea are called capitalist.But
they are actually example of mixed
capitalist economy.
The means of production are owned by
private enterprises but the govt.directly
controls and regulates the working .

20. 2. COMMUNISM/SOCIALISM
It is based on the philosophy of equality.It
believes in classless society. Main activities
are regulated and controlled by the Govt. in
the interest of public. The main features are :
Social ownership of means of
production (means of production are property
of state , not any of private individual).
No private enterprise
Classless society (every individual enjoys
equality of opportunity regardless of caste, family
and religion).
No freedom of choice by consumers
(doesn’t enjoy sovereign rights .what to supply ,
how to supply , how much to supply and what
price-is decided by the state only).

21. China, Polland, Romania, north korea,
Cuba, East Germany etc. tried to
established socialism but failed.
Now except North Korea, all other are
following the mixed economy.

22. 3. MIXED ECONOMY
A mixed economy is a combination of the
two extremes Socialism and capitalism.
In this economy both the private and
Public sectors exist and work together in
the national interest.

23. FEATURES:
Co-existence of both.
Freedom of choice by consumer is
protected.
Prices are fixed and regulated by the govt
as well as based on market forces.(in
critical goods like oil , LPG – govt fix the price).
Govt. protects Labour interests and
weaker sections from exploitation by
capitalist.
Consumer sovereign rights are protected.
(govt protects the consumers from the exploitation by
private entrepreneurs)

24. Almost every country is a mixed
economy today.
Either it is mixed capitalist like US
and UK or it is mixed socialist like
China and India.

25. INTERACTION MATRIX
Studies interaction, interdependence , interlocking of
various environmental factors.
Environmental analysis & diagnosis give strategists time to
anticipate opportunities & to plan to take optional
responses to these opportunities.
Its also helps strategists to develop an early warning
system to prevent threats & to develop strategies which
can turn a threat to the firm’s advantage.

26. INTERACTION MATRIX
The interaction between economic and non-economic
environment can be explained with the help of
interaction matrix.
For this purpose , business environment can be
classified on the basis of :
Factor
Boundaries
Time

27. 1. ON THE BASIS OF FACTORS
Critical elements of Non-economic environment are
taken along the rows and the critical elements of
Economic environment along the columns.
The + sign shows the interdependence of economic
and non-economic factors.
(When a given element of EE influences a given
environment of NEE , a short line is drawn vertically , and
in case of vice-versa , a short line is drawn horizontally
,resulting the positive sign).
This matrix serves as a tool to environmental reaction and
relation.

28. ECONOMIC
ENVIRONMENT
NON ECONOMIC ENVIRONMENT
Sociological Educational Political &
Legal
Historical Physical
Economic system + + + + +
Economic structure + + + + +
Economic planning + + + + +
Economic policies + + + + +
Economic Programmes + + + + +
Functioning of Economy + + + + +
Economic Control &
Regulation
+ + + + +
Economic Growth &
Development
+ + + + +

29. 2. ON THE BASIS OF BOUNDARIES
 Interaction matrix 2 explains the relationship
among local, regional , and international
environment.
 It is a two-by-six matrix.

30. Non-national
Environment
NATIONAL Environment
Economic
environment
Non-economic
Environment
LOCAL Economic
Non-economic
REGIONAL Economic
Non-economic
INTERNATIONAL Economic
Non-economic
+
+
+
+
+
+
+
+
+
+
+
+

31. 3. ON THE BASIS OF TIME
 It shows the interaction between past
present and future.
 It’s a two-by-four matrix.

32. Non-present
Environment
PRESENT Environment
Economic
environment
Non-economic
Environment
PAST
•Economic
•Non-economic
FUTURE
•Economic
•Non-economic
+
+
+
+
+
+
+
+

33. ECONOMIC GROWTH
The classical breakdown of all economic sectors follows:
Primary sector : is the sector of an economy making direct use
of natural resources. This includes agriculture, forestry and
fishing, mining & quarrying.
Secondary or industrial sector: industrial sector includes
those economic sectors that create a finished, tangible product
i.e. production of goods and construction.
The industrial sector generally takes the output of the primary
sector and manufactures finished goods. Many of these
industries consume large quantities of energy and require
factories and machinery to convert the raw materials into goods
and products. They also produce waste materials and waste heat
that may pose environmental problems or cause pollution.

34. Tertiary sector (also known as the service sector or
the service industry).The Services Sector includes sub-sectors
like :
Trade
Hotels and Restaurants
Transport
Storage & warehousing
Communication
Banking and Insurance
Real Estate; Business services
Public administration and defence
Social and personal services and
Other services including Education, Medical and Health,
Religious and Other Community Services, Legal Services,
Recreation and Entertainment Services.

35. Quaternary Sector
The quaternary sector of the economy consists of
intellectual activities. Activities associated with this sector
include government, culture, libraries, scientific research,
education, and information technology.
Quinary Sector
Some consider there to be a branch of the quaternary
sector called the quinary sector, which includes the
highest levels of decision making in a society or economy.
This sector would include the top executives or officials in
such fields as government, science, universities,
nonprofit, healthcare, culture, and the media.
Industries that transform semi-manufactured goods
into goods needed by final demand are called "last
industries" or "enclave import industries".

36. BY OWNERSHIP
An economy can also be divided along different lines:
Public sector or state sector
Private sector or privately run businesses
Social sector or Voluntary sector

37. A FORWARD LINKAGE When one industry or sector produces the
raw materials for another,
When one industry or sector produces the raw materials for another,
this is referred to as the forward linkage.
Forward linkages are a distribution chain that connects a producer
with the customers.
A BACKWARD LINKAGE backward linkages is when one industry
or sector has to depend upon another industry that id not is not
directly related to it for services
Backward linkage is a channel used between a company and its
suppliers to make a flow of information, material and money by
creating an economic interdependence.
Normally, projects create both forward and backward linkages.
Investment should be made in those projects that have the greatest
total number of linkages

38. AN EXAMPLE of an industry that has excellent forward
and backward linkages is the steel industry.
Backward linkages include coal and iron ore mining.
Forward linkages include items such as canned goods.