This is the compiled file and includes the following topics
* Business Environment
* Importance of Business Environment
* Characteristics of Business Environment
* Dimensions of Business Environment (PESTEL)
* Globalization and Indian Economy
* Investments and developments in India
* Government Initiative
1. Bimarsh Raj Giri
Introduction:
Business environment is the sum total of all external and internal factors that influence a
business. You should keep in mind that external factors and internal factors can influence each
other and work together to affect a business. The forces which constitute the business
environment are its suppliers, competitors, consumer groups, media, government, customers,
economic conditions, market conditions, investors, technologies, trends, and multiple other
institutions working externally of a business constitute its business environment. These forces
influence the business even though they are outside the business boundaries
For example, changes in taxes by the government can make the customers buy less. Here the
business would have to re-establish its prices to survive the change. Even though the business
were not involved in initiating the change it still had to adapt to it in order to survive or use the
opportunity to make profits. Now let us discuss the importance of the business environment.
Importance of the Business Environment
1. Enables to Identify Business Opportunities
All changes are not negative. If understood and evaluated them, they can be the reason for
the success of a business. It is very necessary to identify a change and use it as a tool to solve
the solve the problems of the business or populous.
For example, Mr. Phanindra Sama was troubled by the ticket booking condition in India. He
used to travel a long distance to his travel agent to book his ticket but even after traveling
this distance he was not sure if his seat was confirmed. He saw the opportunity to establish
an app in the face of the problem and co-founded the online ticket booking app called
‘redBus’.
2. Helps in Tapping Useful Resources
Careful scanning of the Business Environment helps in tapping the useful resources required
for the business. It helps the firm to track these resources and convert them into goods and
services.
3. Ensures Optimum Utilization of Resources
The study of business environment is needed as it ensures optimum use of resources
available. For this, the study of economic and technological environment is useful. Such
study enables organization to take full benefit of government policies, concessions
provided, and technological developments and so on.
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4. Coping with Changes
The business must be aware of the ongoing changes in the business environment, whether it
be changes in the customer requirements, emerging trends, new government policies,
technological changes. If the business is aware of these regular changes then it can bring
about a response to deal with those changes.
For example, when the Android OS market was blooming and the customers were preferring
Android devices for its easy interface and apps, Nokia failed to cope with the change by not
implementing Android OS on Nokia devices. They failed to adapt and lost tremendous
market value.
5. Assistance in Planning
This is another aspect of the importance of business environment. Planning purely
means what is to be done in the future. When the Business Environment presents a problem
or an opportunity, it is up to the business to decide what plan would it have to come up with
in order to address the future and solve the problem or utilise the opportunity. After
analysing the changes presented, the business can incorporate plans to counteract the
changes for a secure future.
6. Helps in Improving Performances
Enterprises that are thoroughly scanning their environment not only deal with the changes
presented but also flourish with them. Adapting to the external forces help the business to
improve the performance and survive in the market.
7. Identification of Strength and Weaknesses
The analysis of the internal environment helps to identify strength of the firm. For instance,
if the company has good personal policies in respect of promotion, transfer, training, etc
than it can indicates strength of the firm in respect of personal policies. This strength can
be identified through the job satisfaction and performance of the employees. After
identifying the strengths, the firm must try to consolidate its strengths by further
improvement in its existing plans & policies.
The analysis of the internal environment indicates not only strengths but also the weakness
of the firm. A firm may be strong in certain areas; where as it may be weak in some other
areas. The firm should identify sue weakness so as to correct them as early as possible.
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Characteristics of Business Environment
• Totality of External Forces
Business Environment is the sum total of all the external factors that influence the
functioning of the business.
Hence, it can be called as the comprehensive mega force consisting of all external inputs.
• Specific and General Forces
Business Environment is made up of both specific and general forces. Specific forces refer
to the customers, competitors, investors etc. which have a direct effect on the day to day
working of the business while the general forces refers to social, political, legal,
technological and other forces which indirectly affect the operations of a business.
• Inter Relatedness
Various elements of business environment are very closely related to each other. For
example, at present there has been an increase in demand for products like diet colas, fat
free cooking oil, sugar free products etc. due to increase in awareness for good health
among the consumers.
• Dynamic Nature
Business environment is dynamic in nature i.e. it keeps on changing. For example, change
in government policies, change in taste and choice of the consumer, change in technology
etc. Such changes could be triggered by internal or external factors.
• Uncertainty
Business environment is very uncertain as one cannot predict as to what will happen in
future especially in case of fashion industry, film industry and information technology. Its
dynamic nature makes it all more challenging to handle uncertainty.
• Complexity
Many forces constitute the business environment. Thus, it becomes very difficult to know
exactly the relative influence of a particular force (social, economic, technological etc.) on
the functioning of a business enterprise as all these factors are related to one another.
Managers constantly need to simplify this complexity as much as possible all the time. For
example, if there is change in demand of a product, it becomes very difficult to determine
the separate influence of social, political, technological, economic or legal forces etc. on
such a change.
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• Relativity
Different countries and different regions have different business environment. Thus,
business environment is a relative concept. For example, technology in Japan differs from
that in India or say Pakistan, China etc. Hence, a multinational enterprise has to keep this
aspect in mind while formulating its policies for different countries.
Dimensions of Business Environment
Economic Environment
The economic environment consists of external factors in a business market and the broader
economy that can influence a business. You can divide the economic environment into the
microeconomic environment, which affects business decision making - such as individual
actions of firms and consumers - and the macroeconomic environment, which affects an entire
economy and all of its participants. Many economic factors act as external constraints on your
business, which means that you have little, if any, control over them. Let's take a look at both
of these broad factors in more detail.
Macroeconomic influences are broad economic factors that either directly or indirectly affect
the entire economy and all of its participants, including your business. These factors include
such things as:
• Interest rates
• Taxes
• Inflation
• Currency exchange rates
• Consumer discretionary income
• Savings rates
• Consumer confidence levels
• Unemployment rate
• Recession
• Depression
Microeconomic factors influence how your business will make decisions. Unlike
macroeconomic factors, these factors are far less broad in scope and do not necessarily affect
the entire economy as a whole. Microeconomic factors influencing a business include:
• Market size
• Demand
• Supply
• Competitors
• Suppliers
• Distribution chain, such as retail
stores
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Social Environment
Social environment refers to the nature of social organisation and development of social
institutions like Caste, Religion, customs, and socio-economic factors like Class structure,
Social mobility, women employment etc.
Impact of Social environment on Business:
Caste – Competitive trading , Weaving , Metal , finance communities
Religion – Prohibition on Pork & Meat , Islamic finance
Customs – Women employment, restriction on overseas employment
Class Structure - Upper , Middle , Manual class
Social mobility – Middle to upper , Manual to Middle etc.
Poverty – Low purchasing power
Education – Availability of Skill & its cost.
Health – Long life – more allocation to senior citizens availability of knowledge.
Social Indicators :
1. Longevity & Health
2. Education
3. Standard of Living
Social responsibility of Business:
Business is affected by society and vice-versa. Society includes Internal & External
segments.
Internal segment - owners & employees.
External segment – competitors, customers, suppliers, Government, Local community. No
business can be in conflict with any of these segments. Hence the business has to take care of
societal interest.
Responsibility to Owners:
Protect capital, provide fair return to owners, ensure longevity of business, Transparency in
the operation of business
Responsibility to Employees:
Employees are key recourses of business. Hence fair compensation, welfare, training,
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development have to be provided
Responsibility to Consumers:
Consumers are the foundation of business. A dissatisfied customer is a warning signal to
business. The business has to ensure the following rights of customers:
1. Right to safety – Provide safe products
2. Right to product knowledge & Education – Provide through advertisements
3. Right to product choice – Avoid monopoly
4. Right to full value – Ensure product utility & performance as advertised
5. Right to justice – Through Consumer Protection Act
Responsibility to Suppliers:
A good relation with suppliers is essential for quality & continuous supply of raw materials &
other inputs for continuous production. Responsible business avoid the following:
1. Unfair Practices – Break contract, Delay payment, take advantage of loopholes
Responsibility to Competitors:
To engage in healthy competition, the good business strategies & practices of competitors
should be learned & should not engage in the following:
1. Competitors brand assassination
2. Restrictive trade practices – Price discrimination, tie-up sale, exclusive dealership
3. Unfair trade practices- misleading advertisement, tricky prices, unreasonable product
guarantee.
Responsibility to Government:
Responsible companies are good corporate citizens. They contribute to the development of
industry and economy. These responsibilities include:
1. Pay taxes
2. Provide data
3. Implement government schemes
4. Give preference to government companies
These companies find easier to obtain license, credit from public and supply order from
government.
Responsibility to Local community:
Local support is important. The local population suffers due to companies such as water,
antipollution. Hence companies should compensate indirectly by providing infrastructure,
education, forestation etc.
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Technological Environment
The forces related to scientific improvements and innovations for improving quality of goods
and services and new techniques for operating the business, are all part of technological
environment. It includes new approaches, new procedures and new equipment to transform
inputs into outputs. It facilitates an organization’s efficiency and effectiveness so that it can try
to remain at par with the best in the world.
Technological changes provide opportunities for some enterprises and become threats for some
others. For example, digital watches killed the business prospects of traditional watches, TV
has adversely affected radio and cinema industry, mobile phones have taken over the market
from landline phones.
Moreover, new innovations in different fields such as medicine, telecommunication, bio
technology, food preservatives etc. have resulted in many opportunities and threats for many
firms.
Similarly, the new technological changes in computers and electronics such as CD ROM,
Internet, and World Wide Web etc. have proved very useful to the business firms in advertising
their products, in having direct links with suppliers to replenish the stocks when required, in
having flexible manufacturing system etc.
Political Environment:
Political Environment consists of forces such as political stability and peace in the country and
attitude of the ruling party and its representatives towards business. These forces significantly
affect the functioning of business.
Whenever there is political stability, it increases the confidence of businessmen whereas
political instability, adversely affects the business. For example even after opening of our
economy inl991, many foreign companies found it very difficult to enter the Indian market
because of ‘Bureaucratic Red Tape’. As a result, many of these companies got discouraged
from doing business in India.
Main Aspects of Political Environment:
(i) Government’s attitude and the nature of intervention towards various industries.
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(ii) Pressure by government and allied agencies.
(iii) Political parties and their policies.
(iv) Political ideologies and practices of ruling party.
(v) Nature of ruling party and government.
(vi) Constitution of the country.
(vii) Nature of country’s relation with foreign countries, particularly neighbours.
Business functions within the framework of political environment. Generally, governments’
policies change with the change of guard in power. Business is required to understand and
follow such changes and also respect the orders that judiciary gives from time to time.
For example, after globalization, government of India allowed many foreign companies to enter
the Indian market for giving boost to different industries like food processing industry etc. That
paved the way for entry of multinationals on a large scale.
5. Legal Environment:
Legal environment consists of rules and regulations, framed by the Parliament, under which
business must operate. To exist and grow, business is required to follow all the rules and
regulations that constitute this environment.
Legal Environment includes different laws passed by the government, administrative orders
issued by government authorities, courts and also various ‘recommendation made by various
commissions agencies at three levels of the government – central, state, local. It is very essential
for the management of any business firm to obey these rules and regulations for smooth
functioning of the business.
Non-obedience to these rules can land the business enterprises in many legal problems. In
India, business firms are required to have complete knowledge of acts like Companies Act
1956, Consumer Protection Act 1986, Industrial Disputes Act 1947, and Competition Act 2002
and so on.
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The influence of legal environment can be explained with the help of government regulations
in order to protect the consumers’ interests. For example, it is compulsory that the
Advertisement/Packaging of Cigarettes should carry the statutory warning that “Cigarette is
injurious to health”.
Globalization and Its Impact on Indian Economy
Globalization is the integration of national economies through trade, investment, capital flow,
labour migration, and technology. Globalization results from the removal of barriers between
national economies to encourage the flow of goods, services, capital, and labour. Globalization
is a worldwide trend, through which economies in the world lose their borders and connect to
each other. The companies are no longer imprisoned in their borders and can implement a wide
range of business activities around the world.
Globalization, developed from economic aspect, has two main components: the globalization
of markets and globalization of production. The globalization of markets refers to the
merging of historically different and separate national markets into one big global market. In
recent years, constantly is discussed that the tastes and preferences of consumers in different
countries and nations begin to resemble on a global level and the way that they help in the
creating of a global market. The companies that offer standardized products worldwide, help
in the creation of a global market. The most common global markets are not the markets for
mass consumer products, because there are still differences between countries in terms of tastes
and preferences, which still have great meaning and a sort of brake on globalization, but these
are the markets for industrial goods and materials that have universal need the world. The
globalization of production refers to the tendency of the companies to find suppliers of goods
and services from locations around the world, in order to realize the advantage of national
differences in price and quality of the factors of production. Companies do this in order to
reduce overall costs and thereby to improve the quality or to improve the functionality of their
product offering to compete more effectively
Investment/Developments
• In August 2018, Indian Oil Corporation announced a Rs 22,000 crore (US$ 3.02 billion)
capex plan for 2018-19.
• Mergers and acquisitions (M&A) activity in the country has reached US$ 74.8 billion in
2018 (up to August).
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• Private Equity (PE) investments in India have reached US$ 12.84 billion during January-
August 2018.
• Companies in India have raised around Rs 21,000 crore (US$ 2.88 billion) through Initial
Public Offers (IPO) in 2018 (up to August).
• In July 2018, assets managed by mutual funds reached Rs 23.96 trillion (US$ 329.06
billion).
• Investments by Alternative Investment Funds (AIFs) increased 90 per cent year-on-year
between April-June 2018 to Rs 74,893 crore (US$ 10.26 billion).
• Reliance Industries Limited (RIL) is planning to invest over Rs 10,000 crore (US$ 1.37
billion) in Uttar Pradesh and Rs 5,000 crore (US$ 687 million) in West Bengal over the
next three years.
• Vedanta Resources Plc is planning to invest about US$ 9 billion in India over the next few
years to expand its hydrocarbons and metals and mining businesses.
• State Bank of India (SBI) and the World Bank have decided to sanction credit worth Rs
2,317 crore (US$ 318.21 million) to seven corporates towards solar rooftop projects to
generate a total of 575 megawatt (MW) of solar energy.
• Bharat Petroleum Corporation Ltd (BPCL) plans to invest Rs 1.08 trillion (US$ 14.83
billion) over the coming five years for expansion of operations across business segments,
of which the company plans to invest Rs 45,000 crore (US$ 6.18 billion) in the
petrochemicals segment.
• Bharti Airtel Ltd has planned to invest about Rs 2,000 crore (US$ 274.67 million) over the
next three years in Project Next, its digital innovation programme, in an attempt to
strengthen its position in India's highly competitive telecommunications market.
• Piramal Finance Ltd, an arm of Piramal Enterprises Ltd, invested Rs 485 crore (US$ 66.61
million) in the subsidiary of Apollo International Ltd, called Apollo Logi Solutions (ALS),
a logistics solutions provider.
• Coal India (CIL) plans to invest US$ 20-25 billion in next five years to achieve annual
output of 1 billion tonnes by 2019-20.
• Reliance Industries Ltd (RIL), along with its partner BP plc, has decided to invest US$ 6
billion for the development of new R-series gas fields in the KG-D6 block.
• Private equity (PE) investments in the Indian real estate sector are estimated to have crossed
US$ 4 billion in 2017, supported by Government of India's regulatory reforms over the past
two years.
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Government Initiatives
The Government of India has taken several initiatives in various sectors to improve the overall
economic condition in the country. Some of these are:
• In September 2018, the National Digital Communications Policy (NDCP) has been
approved by Government of India with the objectives of attracting US$ 100 billion in
investments, improved broadband connectivity and generation of four million jobs in the
telecom sector.
• Securities and Exchange Board of India (SEBI) doubled the maximum investment by angel
funds in venture capital undertakings to Rs 10 crore (US$ 1.37 million).
• The Government of India has decided to invest Rs 2.1 trillion (US$ 28.8 billion) to
recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 95.9 billion)
for construction of new roads and highways over the next five years.
• India and Japan have joined hands for infrastructure development in India's north-eastern
states and are also setting up an India-Japan Coordination Forum for Development of North
East to undertake strategic infrastructure projects in the northeast.
• Union Ministry of Shipping plans to raise US$ 15.8 billion in dollar equivalents at the
interest rate of three per cent, for developing ships, building ports and improving inland
waterways.
• Ministry of environment and forests has granted environment clearance for 35-km coastal
road connecting south and north Mumbai. The coastal road project is part of the US$ 9.52
billion transport infrastructure projects being undertaken by the state government and is
expected to require an investment of US$ 1.34 billion.
• The Government of India will provide soft loan of US$ 1 billion to sugar mills to help them
clear part of their US$ 3.33 billion dues to farmers. The money shall be directly credited to
the farmer’s bank accounts through the Pradhan Mantri Jan-Dhan Yojana.
Internal Environment
An organization's internal environment is composed of the elements within the organization,
including current employees, management, and especially corporate culture, which defines
employee behaviour. Although some elements affect the organization as a whole, others affect
only the manager. A manager's philosophical or leadership style directly impacts employees.
• Mission Statement • Formal Structure