Presented by:-Shreshtha Midha &

Shanky SidanaBBA(B&I)

5th Sem, 1st shift

BUSINESS ENVIRONMENT

WHAT IS BUSINESS ENVIRONMENT? The term Business Environment is

composed of two words ‘Business’ and ‘Environment’. In simple terms, the state in which a person remains busy is known as Business. The word Business in its economic sense means human activities like production, extraction or purchase or sales of goods that are performed for earning profits.

On the other hand, the word ‘Environment’ refers to the aspects of surroundings. Therefore, Business Environment may be defined as a set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of the organization.

Business environment consist of all those factors that have a bearing on the business. The term 'business environment implies those external forces, factors and institutions that are beyond the control of individual business organizations and their management and affect the business enterprise.

These forces are customer, creditors, competitors, government, socio-cultural organizations, political parties national and international organizations etc. some of those forces affect the business directly which some others have indirect effect on the business.

CHARACTERISTICS OF A BUSINESS ENVIRONMENT1. 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.

COMPONENTS OF BUSINESS ENVIRONMENT

Business Environment has two components:1.Internal Environment2. External Environment

INTERNAL ENVIRONMENTThe internal environment is the

environment that has a direct impact on the business. Here there are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment.

It includes 5 Ms i.e. man, material, money, machinery and management, usually within the control of business. Business can make changes in these factors according to the change in the functioning of enterprise.

THE INTERNAL ENVIRONMENT OF A BUSINESS INCLUDES:

VALUE SYSTEM The value system of the founders and those at the helm of

affairs has important bearing on the choice of business, the mission and the objectives of the organization, business policies and practices.

MISSION, VISION AND OBJECTIVES Vision means the ability to think about the future with

imagination and wisdom. Vision is an important factor in achieving the objectives of the organization. The mission is the medium through which the objectives are achieved.

MANAGEMENT STRUCTURE AND NATURE The structure of the organization also influences the business

decisions. The organizational structure like the composition of board of directors , influences the decisions of business as they are internal factors . The structure and style of the organization may delay a decision making or some other helps in making quick decisions.

EXTERNAL ENVIRONMENT It refers to the environment that has an

indirect influence on the business. The factors are uncontrollable by the business. There are two types of external environment:

MICRO-ENVIRONMENTMACRO-ENVIRONMENT

MICRO-ENVIRONMENTThe environment which is close

to business and affects its capacity to work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public.

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

Suppliers: – They are the persons who supply raw material and required components to the company. They must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier.

Customers: - Customers are regarded as the king of the market. Success of every business depends upon the level of their customer’s satisfaction. Types of Customers:(i) Wholesalers(ii) Retailers(iii) Industries(iv) Government and Other Institutions(v) Foreigners

Market Intermediaries: - They work as a link between business and final consumers. Types:-(i) Middleman(ii) Marketing Agencies(iii) Financial Intermediaries(iv) Physical Intermediaries.

Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to the strategies of the Competitors.

Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local public. They may be the users or non-users of the product.

MACRO-ENVIRONMENTMacro environment is also known as General

environment and remote environment. Macro factors are generally more uncontrollable than micro environment factors. When the macro factors become uncontrollable , the success of company depends upon its adaptability to the environment.

Macro-environment includes:(i) Economic (vii) Technological(ii) Social (viii) Physical(iii) Demographic(iv) Cultural(v) Political(vi) Legal

Economic Environment: - It is very complex and dynamic in nature that keeps on changing with the change in policies or political situations. It has three elements:(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.

Political Environment: - It affects different business units extensively. Components:(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 Opposition Parties towards Business Unit

Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the control of business, is known as Socio-Cultural Environment. These factors include: attitude of people to work, family system, caste system, religion, education, marriage etc.

Technological Environment: - A systematic application of scientific knowledge to practical task is known as technology. Everyday there has been vast changes in products, services, lifestyles and living conditions, these changes must be analyzed by every business unit and should adapt these changes.

Demographic Environment :- It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex composition, family size, income level (upper level, middle level and lower level), education level etc. Every business unit must see these features of population and recognize their various need and produce accordingly.

Legal Environment :- Legal environment includes flexibility and adaptability of law and other legal rules governing the business. It may include the exact rulings and decision of the courts.

Physical Environment :- Physical environment includes the location of the business where it is operating. It also includes, the climate and the topography as well as its surroundings from where a business gets its raw materials. Also, the physical environment acts as a market for the outputs produced by a business.

Thank you!