Dr.

Purvi Pujari
 Business environment –
 definition, nature and scope,
 distinction between internal and external
environment of business,
 limitations of environmental analysis.
 Different environmental variables exist
internally and externally to the business
enterprise
 Environmental variables have a positive or
negative influence on the enterprise
 Business environment consists of two sub-
environments:
 Internal(micro) environment
 External environment
 Market environment
 Macro environment
 Mutual relationships exist between these
environments 3
 According to Keith Davis, -
 “Environment of the business means the
aggregate of all conditions, events and
influences that surround and affect it”.
 According to Bayard O Wheeler, business
environment refers to “The total of all things
external to firms and industries, which affect
their organisation and operation”.
 According to Arthur M Weimer, “Business
environment encompasses the climate or set
of conditions, economic, social, political or
institutional in which business operations are
conducted”.
 (a) Determining Opportunities and Threats: The
interaction between the business and its environment
would identify opportunities for and threats to the
business. It helps the business enterprises for meeting the
challenges successfully.
 (b) Giving Direction for Growth: The interaction with the
environment leads to opening up new frontiers of growth
for the business firms. It enables the business to identify
the areas for growth and expansion of their activities.
 (c) Continuous Learning: Environmental analysis makes
the task of managers easier in dealing with business
challenges. The managers are motivated to continuously
update their knowledge, understanding and skills to meet
the predicted changes in realm of business
 (d) Image Building: Environmental understanding helps the
business organisations in improving their image by showing
their sensitivity to the environment within which they are
working. For example, in view of the shortage of power,
many companies have set up Captive Power Plants (CPP) in
their factories to meet their own requirement of power.
 (e) Meeting Competition: It helps the firms to analyse the
competitors’ strategies and formulate their own strategies
accordingly.
 (f) Identifying Firm’s Strength and Weakness: Business
environment helps to identify the individual strengths and
weaknesses in view of the technological and global
developments.
(a) SPECTACLES – Social, Political, Economic,
Cultural, Technological, Aesthetic,
Customer, Legal, Environmental and Sectoral
(b) PEETS – Political, Economic, Ecological,
Technological and Socio–demographical
(c) SLEPT – Social, Legal, Economical, Political
and Technological
(d) PETALS- Political, Economic, Technological,
Aesthetic, Legal, Social
  1. Business environment is compound in nature.
 2. Business environment is constantly changing
process.
 3. Business environment is different for different
business units.
 4. It has both long term and short term impact.
 5. Unlimited influence of external environment
factors.
 6. It is very uncertain.
 7. Inter-related components.
 8. It includes both internal and external environment.
 First Mover Advantage-Early identification of
opportunities helps an enterprise to be the first
to exploit them instead of loosing them to
competitors.
 Customer Focus -Environmental understanding
provide enough information regarding the need
and expectation of the customer and helps
business organisation to focus towards their
customers.
 Strategy Formation - Keeping an eye on
environment provide relevant information to the
organisation in formulation of strategy.
 Early Warning Signal -It makes a firm aware of
the impending threat or crises, so that the firm
can take timely action to minimise the adverse
effects.
 Public Image -A business firm can improve its
image by showing that it is sensitive to its
environment and responsive to the aspiration of
public.
 Continuous Learning -Enterprises that
continuously monitoring their environment and
adopt suitable business practices not only improve
their present performance, but also succeed in the
market for a longer period.
 Change Agent -Business leaders act as agents
of change. They create a drive for change at
the gross root level. In order to decide the
direction and nature of change, the leaders
need to understand the aspirations of people
and other environmental forces through
environment scanning.
 Technological Change-Environmental study
helps us in getting updates regarding
technological changes and helps in making
action plans to cope with such changes.
 Internal Environment
 External Environment
Microenvironment
Macro environment
Economic
Non Economic
 Refers to all the factors that are within an
organization which impart strengths or cause
weaknesses of strategic nature.
 Controllable factors. These include:
 Value system
 Mission and Objectives
 Management Structure and Nature
 Human Resources
 Company Image and Brand Equity
 Other Factors
 Physical Assets and Facilities
 R & D and Technological Capabilities
 Marketing Resources
 Financial Resources
 Value System: The value system of the founders
and those who are at the top has an important
bearing on the choice of business, mission and
objectives, business policy and practices. Value
system also is evaluated by many companies in
selection of suppliers, distributors ,collaborators
etc.
 Core value system of Infosys states : To achieve
our objective in an environment of fairness,
honesty, transparency and courtesy towards our
customers, employees, vendors and society at
large
 Vision , Mission & Objectives
 Business objectives of a company are also
guided by the mission and objectives of the
company.
 Ranbaxy’s thrust in foreign market is based
on the mission “to become a research based
international pharmaceutical company.”
 Top Management Structure-The composition of
the board of directors is very critical factor for
the development and performance of company
as they are highest decision-maker authorities,
extend of professionalism of management as it
may be professionally managed or family
controlled, nominee of financial institutions
having large holdings in companies, the
shareholding pattern could have important
managerial implications. All these factors are of
great importance from the point of view of the
company’s internal environment.
 Power Structure-
 The internal power relationship between
the board of directors and senior
executive officers highly effect the
decision making process of the
organisation
 Human Resources - The characteristics of human
resources like skill, quality, morale,
commitment, attitude etc. could contribute to
the strength & weakness of an organization.™
 Some organizations find it difficult to carry out
restructuring or modernization because of
resistance by employees whereas some others do
it smoothly.
 Company Image and Brand Equity-The
image and brand equity of the company
matters a lot in raising finance, forming joint
ventures and other alliance, choosing dealers
and suppliers etc.
 Includes all factors outside the organization
which provide opportunities or pose threats to
the organization

 Uncontrollable factors

 Consists of Micro and Macro environment

 External environment includes all those
factors and forces, which are external to
the business organization such as
economic, socio-cultural, demographic
etc. These external factors are beyond
the control of the company. Hence they
are regarded as uncontrollable factors
especially as they are dynamic and keep
on changing continuously..
 The micro environment consists of all those
factors in the firm’s immediate environment.
The micro environment can have direct
impact on the working of a firm.
 Suppliers
Customers
Marketing
Intermediaries
Competitors
Public
Financial Community
 1) The customer :
 The key to success in marketing of goods
depends on consumer - oriented
approach. It is important to consider
customer’s likes, dislikes, needs,
preferences, buying motives and
expectations. Higher customer patronage
brings increased profit to the business.
 3) The Suppliers :
 Suppliers include those who supply inputs
like raw materials,and components to the
organization. An organization can’t
function without a smooth supply of its
stocks and raw materials. Therefore, it
becomes essentials to ensure a good
relationship with its suppliers to get
quality goods at the right price and at
right time.
 2) The competitors :
 A firm has to analyse its competitors’ activities.
Information about competitors must be analysed
with respect to their product designs, pricing,
promotion, distribution, etc. Such analysis will
enable the firm to design effective marketing –
mix.
 4) Channel Intermediaries :
 Now-a-days, dealer recommendations
play an important role to convince buyers
to buy products, especially in the case of
consumer durables. The firm has to
motivate the dealers to push and promote
its products and also to obtain timely
feedback about consumers’ tastes,
preferences, likes, dislikes, etc.
 5) Society :
 The society may also affect company’s decisions.
The society can either facilitate or make it
difficult for a company to achieve its objectives.
Business has not only to earn profits but also to
serve the society. Society consists of general
public, media, government, financial institutions
and organised group. Like trade unions,
shareholders associations etc. Society directly
influences the decisions of a business.
 6) Corporate Resources :
 Corporate resources include employees,
funds, materials,machinery and
management. These resources are
controllable. They can be used as per the
guidelines provided by business policies.
 The macro environment consists of the
larger factors that affect the day to day
functioning of a firm. It relates to
demographic, economic, natural,
technological, political, cultural,
international and legal factors.
It comprises general trends and forces that may
not immediately affect the organization but
sooner or later will alter the way organization
operates.

Macro Environment :-
 Economic
 Non Economic
 1) Economic Environment :
 Economic environment is one components of
total business environment. It is the outcome of
economic policies. Economic events within and
outside the country also affect economic
environment. i) Economic Conditions of Public(ii)
Economic Policies of the country(iii)Economic
System(iv) Other Economic Factors:–
 Infrastructural Facilities, Banking, Insurance
companies, money markets, capital markets etc
 Economic stages that exists at a given time in a
country
 Economic system that is adopted by a country for
example. Capitalistic, Socialistic or Mixed Economy
 Economic planning, such as five year plans,
budgets, etc.
 Economic policies for example, monetary,
industrial and fiscal policies
 Economic Indices such as National Income, Per
Capital Income, Disposable Income, Rate of growth
of GNP, Distribution of Income, Rate of savings,
Balance of Payments etc.
 Economic Problems
 Functioning of economy
 Regulatory Environment

 Socio- Cultural Environment

 Demographic Environment

 Technological Environment

 Political Environment
 Political Environment :
 Political environment refers to the
situation created by political factors and
forces. It suggests the influence exerted
by the three political institutions i.e.,
legislature, executive and judiciary, in
shaping, directing, developing and
controlling business activities
 (a) Political Belief of Government(b) Political
Strength of the Country(c) Relation with
other countries(d) Defense and Military
Policies(e) Centre State Relationship in the
Country(f) Thinking of Opposition Parties
towards Business Unit
 Political environment refers influence
exerted by legislature executive and
judiciary. These three political institutions
shape, direct and control business activities.
Legislature decides a specific course of
action. Executive implements whatever
decided by legislature. Judiciary is the
‘watchdog’ to see that legislature and
executive work in public interest within the
boundaries of constitution.

Dr. Purvi Pujari

 a. Political system
 b. Political institutions
 c. Political ideologies of the parties
 d. Political stability
 e. Strength of opposition and political
nature of parties
 The legal environment is comparatively new
component of total business environment. Legal
environment is the net result of various laws,
rules, procedures and regulations made by the
government in regard to the formation and
operations of business enterprises.
 It has a great impact on the functioning of the
organisation as it establishes codes and
procedures for various types and aspects of
business and deals with deviations or
infringement law like bribery, product
counterfeiting, gray markets, black markets,
consumer deception and tax evasions
 The coverage, efficiency and efficacy of the
Regulatory system determine adequacy, cost and
speed of economic justice and these factors are of
great importance for the growth of business. In every
country there exist specific pieces of business
legislation which together guide control and regulate
business activity, such as in India Trade Mark Act
1969, Essential Commodities Act 1955, Standards of
Weights and Measures Act 1969 and Consumer
Protection Act 1986.
 Cultural environment is the result of social
forces. Society includes different social groups
i.e. customers, investors, local community and
employees. The expectations of these groups
create cultural environment for business
 Social Customs & Rituals and practices
 Lifestyle patterns
 Family structure
 Role & position of men, women, children and
aged in family & society
 Demographic Environment :
Demographic environment relates to the
population and its division on the basis of age,
sex, standard of living, size of the family,
employment, etc. Market demand,
requirements of consumers, etc are based on
demographic environment. The study of
demographic environment has priority over
other areas of business environment as
business depends on people. Growth of
population-Age Composition,Life-
Expectancy,Sex-Ratio, Fertility and Mortality
rates, Inter-state migration .
 Culture is understood as “that complex
whole which includes knowledge, belief,
morals, laws, customs, and other capabilities
and habits acquired by an individual as a
member of a society.” Culture includes many
behavioral influencing factors shared by
members of a society and passed on through
generations.
 1. Culture is a wholistic concept.
 2. Culture is not innate.
 3. Culture is the outcome of social interaction
among people over a period of time.
 4. Culture is cumulative.
 5. Culture is a basic determinant of human
personality.
 6. Culture provides socially acceptable pattern
for meeting biological & social
 needs.
 7. Culture is independent of any individual or
group.
 8. Culture is of 2 types – material & non-
material.
 Natural Environment relates to natural
resources like land, water, minerals, port
facilities, etc. Business firms are use
natural resources like water, land, iron-
ore, crude oil, etc. In doing so, two things
happen i.e. Erosion of natural resources
and pollution of resources. Business firms
should understand these two effects and
take necessary measures to control
erosion and pollution of natural
resources.
Technological environment implies the level
of technology available in a country.
Technology is the systematic application
of scientific or other organised knowledge
to practical tasks. Technological
advancement make it possible to improve
the quality of products, increase the
output and decrease the cost of the
product. Technological changes are rapid
and to keep pace with it, businessmen
need to be alert and flexible in order to
quickly incorporate them in their business
organizations.

 Now-a-days, financial environment greatly
influences the working of the firm. For example,
poor financial climate in the country dampens
the spirit of stock markets. Therefore, corporate
firms find it difficult to raise funds from the
primary market. The non-availability of right
funds affects the growth prospects of corporate
firms. Business finance is concerned with making
decisions about the investments in the business.
It includes bond markets, forex markets, stock
markets, commodity markets, OTC markets, Real
estate markets and cash or spot markets. All
these markets play an important role in raising
finances for the companies and at the same time
give profits to the investors
 Business firms engaged in foreign trade are
more affected by changes in the
international environment. Business firms,
which cater to foreign trade, must constantly
monitor implications of international
environment on their business.
Important factors that operate at global level which have an impact

on organization are:
 Growth of world economy
 Distribution of world GDP
 International institutions IMF,WTO, ILO
 Economic relations between nations
 Global human resource-nature and quality of skills, mobility of labor
 Global technology and quality standards
 Global demographic patterns
1.Joseph Nye and John Donahue: “Globalism is
a state of the world involving networks of
interdependence at multicontinental
distances.”
2. World Bank: Globalization is the growing
integration of economies and societies
around the world.
 Legal-Political
Economic •Political risk
•Economic
development •Government takeovers
•Infrastructure •Tariffs, quotas, taxes
•Resource and •Terrorism, political
product instability
markets
•Per capita •Laws, regulations
Income
•Exchange Organization
rates
•Economic
conditions Sociocultural
•Socio values, beliefs
•Language
•Religion (objects, taboos, holidays)
•Kinship patterns
•Formal education, literary
•Time orientation