Unit 2 – Business Environment

b) - Efficient human resource of the business takes the business to greater heights.
The quality of goods and services provided by the business also depends upon the people employed in the
business. Therefore, it is an internal factor which is in control of the business.

c) - The board of directors should foresee the changes in external

environment and form business strategies and policies accordingly. The business owner should also keep in
mind business ethics and values so as to survive in the economy.

d) - Promoting the brand of the business is completely in the control of the

entrepreneur. If the business succeeds in providing quality goods and services to the customer’s then
business builds the best brand image.

e) - It is in the control of the business to formulate the policies and

strategies of promoting their business in this competitive world. They should work towards healthy
competition and fulfill their business objectives.

f) - Business should promote healthier and happier environment

inside the organization and provide good working conditions for the employees.

Economic
Environment

Legal Environment Social Environment

External
Environment

Technological Political
Environment Environment

Contemporary Business Environment is made up of the following elements.

1. Economic environment
2. Social environment
3. Political environment
4. Technological environment

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 Unit 2 – Business Environment

5. Legal environment

All these factors explain the general environment which mostly influences many enterprises at the same
time. The business has to be aware of all the dimensions of business environment, so that they can identify
threats and opportunities and cope up with all the rapid changes through proper planning and policy
formulation.

1. Economic environment - The economic environment exercises most significant influence on

business because business itself is an economic institution. Totality of Economic Factors, such as
employment, income, inflation, value of rupee, interest rate, productivity, wealth, that influences the
buying, behavior of the consumers and firms comprises Economic Environment. Since 1991 the
government has announced several measures which are popularly known as economic reforms. It consists
of liberalization, privatization and globalization (LPG).

LIBERALISATION means removal of restriction on the entry and growth of private Sector firms.

PRIVATISATION means giving greater role to private sector and reducing role of public sector.

GLOBALISATION means integration of our economy with world economy to promote imports, exports and
mobilizing exchange movement.

Examples of impact of economic environment on business are as follows :—

a. A rise in income of people has created increasing demand for products.
b. Globalization has resulted in entry of several multinationals into India.
c. Rapid growth of Indian economy has been causing inflation.
d. Stock markets in India have become more sensitive to change in international stock markets.

2. Social Environment - Social environment refers to characteristics of the society in which a

business firms exists. It consists of social institutions and groups, educational system and literacy rates,
custom beliefs, values and life styles, tastes and preferences of people. Demographic forces- size,
population, occupational structure.

Examples of impact of social environment on business are as follows : —

a. Changing attitude of Indians towards food and clothing have led to growth of fast food joints and ready-
made clothing.
b. Better education facilities for girls are creating greater demand for school dress, books and stationery.
c. NGO’s and courts are making business firms more responsible towards consumers and environment
protection.

3. Political environment - Political environment comprises the elements relating to government

affairs. It serves as regulatory framework of business.

The main constituents of political environment are as follows -

 Constitutional framework

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 Unit 2 – Business Environment

 Political ideology
 Philosophy of political parties
 Political stability
 Image of country and it leaders
 Defense and military policy
 Nature and extent of beaurocracy

Examples of impact of political environment on business are as follow -

a) Coalition government at centre has reduced political stability increasing risks for business.
b) Reservation for ST, SC AND OBC’s etc in educational institutions.
c) Creation of new states of Chhattisgarh, Jharkhand, and Uttaranchal is affecting transport, tourism and
mining industries.

4. Legal environment - Legal environment consist of laws, rules and regulation, framed by the
parliament under which the business must operate. To exist and grow the business has to follow all the law
that constitutes this environment. Non compliance of laws can pose threats for business enterprises.

The main constituents of legal environment are -

1. Laws governing business- economic, commercial and labour laws.
2. Flexibility and adaptability of laws.
3. Implementation and effectiveness of laws, court decisions for protection of consumers.
4. Decision rendered by various agencies at center, states or local level.

Examples of impact of legal environment on business

a) Chambers of commerce and industry try to influence the policies and rules through lobbying and public
opinion.
b) Restriction on sale of arms ammunitions, Explosive, dangerous drugs.
c) Protect employee against unfair dismissal.
d) Legislature for health and safety and workers.

5. Technological environment- It includes new approaches, new products and new equipments to
transform inputs into outputs. It also facilitates an organization efficiency and effectiveness so that it can
try to remain at par with best in the world. Technology changes provide opportunities and become threat
for others.
Example of impact of Technical Environment on business
1. Mobile phones have taken over from landline phone.
2. E- ticketing for railways and airways.
3. Information technology and telecommunication have given rise to a global market which requires
better system of production and distribution (Internet marketing).

3.1 Environmental Analysis

No business can afford to ignore changes in environment. A business firm can set its future directions
only when it has visualized the constraints & opportunities that lie ahead. So environment analysis
helps management to predict future development & take corrective actions to implement their plans.
The major technique for analyzing & diagnosing the environment is SWOT analysis.

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 Unit 2 – Business Environment

SWOT Analysis
The organizations have to face challenges and adapt to changes that are taking place in the industry &
market. For this good planning strategy is required by any business. Business operations have to be
smooth for achieving its success.

In 1960’s a team of researchers developed a new method to analyze corporate strategy. This method is
known as SWOT Analysis.

SWOT is basically a business tool that deals with the internal and external factors of the business. It’s
an acronym which stands for Strength, Weakness, Opportunities & Threats. It uses basic data of the
business to identify what strength & weaknesses that a business has and then spot the opportunities
that arise & threats likely to face.

Environmental Scan

Internal External
Analysis Analysis

Strength Opportunities

Weaknesses Threats

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 Unit 2 – Business Environment

Strengths and weaknesses – Strengths describe the positive factors of the business. Weaknesses are
the activities which negatively impact the business. . They are completely under the control of
business. It is an internal factor which can be used as a basis for developing a competitive advantage.

The internal factors include mostly the resources & experiences. General areas to consider are:
 Human resource – staff, board members, target customers
 Physical resources – location, building, equipments
 Financial resources – Grants, funds, credits
 Activities & Processes – Programs the business run, systems they employ.
 Past experience – Reputation of the co. brand name, patents.

Opportunities & Threats

Opportunities are activities that the business does not currently have or do but that could positively
impact the business if undertaken.
Threats are factors that negatively affect the business, if proper steps are not taken to mitigate them.
The business has no control over the external factors which give rise to opportunity & threats. General
areas to consider are –
 Future trends
 The economy – Local, national, international
 Funding sources – donors, legislature
 Demographics – change in age, race, gender, population shifts, culture of the society
 Economic Boom & Depression.

3.2 Advantages & Disadvantages of SWOT Analysis

Advantages
Using the SWOT Analysis gives various benefits to the organization in the following ways –
1. It understands the business & organization better.
2. It helps in addressing the weaknesses of the business.
3. It helps in capitalizing the opportunities in the economy.
4. It helps in taking advantage of strengths of the business.
5. SWOT Analysis prioritizes business goals & strategies.
6. SWOT analysis also lays down the path for achieving the goals of the organization.
Disadvantages

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 Unit 2 – Business Environment

SWOT Analysis is only one stage of the business planning process. For complex issues, more research &
analysis is required. Various disadvantage of SWOT analysis are –
1. It does not prioritize issues & problems faced by the organization.
2. It does not provide solutions or offer alternative decisions.
3. It produces lot of information, but not all of it is useful.
4. It generates too many ideas but does not help to choose the best.

SUMMARY
 Business Environment: Business Environment encompasses the climate or set of conditions,
economic, social, political or institutional in which Business operations are conducted.
 Nature of Business Environment
Nature of Business Environment

System Approach Social Responsibility Approach Creative Approach

 Features of Business Environment






 Components of Internal Environment : Capital, Human Resources, Work Environment, Brand
Image, Management Policies and Promotional Strategies.

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 Unit 2 – Business Environment

 Components of External Environment : Economic, Social, Political, Technological and Legal

Environment.
 SWOT Analysis

1. Business environment
2. Social responsibility
3. Human resources
4. Liberalization
5. Privatization
6. Globalization
7. SWOT Analysis
8. Strength
9. Weakness
10. Opportunity
11. Threat

I. Choose the correct answer:-

1. The positive factors of business are called as ……………………….

a) Strength, b) Threat, c) Opportunity

2. …………………….. are the factors that negatively affect the business

a) Weaknesses, b) Opportunities, c) Threats

3. ‘Coalition government at centre has reduced political stability, increasing risks for business.’ It’s an example of
……………………….

a) Technological environment, b) Legal environment, c) Social environment

4. ……………………………………. refers to integration of our economy with the world economy.

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 Unit 2 – Business Environment

a) Liberalization, b) Privatization, c) Globalization

5. …………………………………… is the life blood of any business

a) Capital/Finance, b) Brand image, c) Work environment

II. Fill in the blanks

1. Human resources are an …………………………………….. factor which is in control of the business.

2. …………………….. environment refers to the characteristics of the society in which a business firm exist.
3. ……………………… environment comprises the elements relating to government.
4. ……………………….. environment includes new approaches, new products and new equipments to transform
inputs into output.
5. ……………………… is a business tool that deals with internal and external factors of the business.

III. Match the following

1. Strength 1. These activities negatively impact the business and are in control of
business.

2. Opportunity 2. Removal of restrictions on private sector firms.

3. Weakness 3. Describe the positive factors of business.

4. Threat 4. Giving greater role to private sector and reducing the role of public sector.

5. Liberalization 5. They negatively impact the business but are out of control of the
business.

6. Privatization 6. If undertaken, they can have positive impact.

IV. True or False

1. SWOT analysis provides readymade solutions for all the business problems.
2. Stability of Government plays a vital role in the growth and development of a business.
3. Specific focus does not affect the day to day functioning of the business.
4. Business environment is differs from country to country and region to region.
5. Satisfied employees bring good profits for the organization.

V. Answer the following briefly:-

1. What is included in legal environment of business? State
2. How does SWOT analysis prepare the business organization for the future?
3. Why business environment is considered to be complex in nature?
4. What is meant by business environment?
5. Which factors give rise to opportunities and threats?

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 Unit 2 – Business Environment

VI. Answer in detail.

1. What role does economic environment play in the business?
2. How increasing competition & more demanding customers bring change in the economy?

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 Unit 3 – Products and Services

Learning outcome:
 Concept of product and its essential features or attributes
 Classify the product or goods on the basis of some characteristics
 Concept of services and its essential features or attributes
 Distinction between Product and Services
 Meaning of Consumer, identifying needs and classification of consumer

3.1 Concept of the Product:

A product is a set of tangible physical attributes assembled in an identifiable form. Each product
carries a name, such as car, iron, building etc. But in marketing, a product is anything which can
satisfy a need, want or desire of consumers and can be offered in an exchange process. Hence, a
product can be commodity, service, idea or a combination of all these. A commodity is a tangible
object such as watch. A service is an intangible which provides benefits and satisfaction to the
users such as health service or doctors’ or nurses’ service. An idea is a philosophy or concept-
such as ‘’stop smoking,’’ ‘’use seat belt during driving’’, ‘’suggestion for doing physical
exercises’’. etc.

When buyers purchase a product, they decide to buy after considering both tangible and
intangible attributes of the product for example a car is a tangible product but its after sales
service, durability, colour, manufactures reputation etc. are intangible part of product. Good
products are key to market success and therefore products should be produced as per the needs
and wants of target market.

3.1.1 Definitions of Product

“A product is a set of tangible and intangible attributes including packaging, colour, price,
quality and brand plus the services and reputation of the seller. A product may be a tangible
goods, service, place, person or idea” “A product should be considered as a bundle of utilities
consisting of various product features and accompanying services.”

- W. Anderson

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 Unit 3 – Products and Services

“A product is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or need. It includes physical objectives, services, person,
places, organisations and ideas.”

- Phillip Kotler

“Products are tangible objects that exist both time and space”

- (Shostack, 1982, p.49)

“Products are artefacts that supply the consumer with benefits, noting that production is usually
separated by time and place from consumption.”

-Manzini (1996)

3.1.2 Features of the product

From the above definitions, some of essential features can be identified as given below :
(A) Tangibility: To be a product, it should have a tangibility character such as it can be touched
or seen, for example a car, building, cloth etc.

(B) Intangible Attributes: The product may also be intangible in the form of services for
instance, banking, insurance, music composition, repairing, nursing etc.

(C) Associated Attributes: A product may have number of features which differentiate it from
competitor’s products. Associated attributes usually cover the colour, package, brand name,
installation instruction etc. For example Hindustan Lever’s vanaspati ghee has a brand name
DALDA and with its package it can be identified by the consumers. It has developed an image in
such a way that all kinds of vanaspati ghee sold are being referred to as DALDA ghee.

(D) Exchange Value: A product may be tangible or intangible but it must have exchange value.
It must be capable of being exchanged between seller and buyer at mutual agreed price.

(E) Consumer Satisfaction: A product should have the capacity to satisfy consumer’s real or
psychological needs and wants. At the same time, it must have capacity to generate profit for the

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