INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT Introduction to Business Environment The formul for !

usiness success re"uires t#o elements $ the individu l nd the Environment% Remove either v lue nd success !ecomes im&ossi!le% Business environment consist of ll those f ctors th t h ve !e rin' on the !usiness% The term( !usiness environment im&lies those e)tern l forces* f ctors nd institutions th t re !e+ond the control of individu l !usiness Or' nis tion nd their m n 'ement nd ffect the !usiness enter&rise% It im&lies ll e)tern l forces #ithin #hich !usiness enter&rise O&er tes% Business environment influence the functionin' of the !usiness s+stem% Thus* !usiness environment m + !e defined s ll those conditions nd forces #hich re e)tern l to the !usiness nd re !e+ond the individu l !usiness unit* !ut it o&er tes #ithin it% These forces re customer* creditors* com&etitors* 'overnment* socio$cultur l or' nis tions* &olitic l & rties n tion l nd intern tion l or' nis tions etc% some of those forces ffect the !usiness directl+ #hich some others h ve indirect effect on the !usiness% ,e tures of !usiness environment - Tot lit+ of e)tern l forces. Business environment is the sum tot l of ll thin's e)tern l to !usiness firms nd* s such* is ''re' tive in n ture% - S&ecific nd 'ener l forces. Business environment includes !oth s&ecific nd 'ener l forces% S&ecific forces ffect individu l enter&rises directl+ nd immedi tel+ in their d +$to$d + #or/in'% 0ener l forces h ve im& ct on ll !usiness enter&rises nd thus m + ffect n individu l firm onl+ indirectl+% - D+n mic n ture. Business environment is d+n mic in th t it /ee&s on ch n'in' #hether in terms of technolo'ic l im&rovement* shifts in consumer &references or entr+ of ne# com&etition in the m r/et% - Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the US , for instance, differ from those in !hina or Pakistan. Similarly, demand for Sarees may "e fairly high in #ndia whereas it may "e almost non$e%istent in &rance. '(P)S *& )+,#R*+-)+'

*n the "asis of the e%tent of intimacy with the firm , the environmental factors may "e classified into different types$ internal and e%ternal. #+')R+ . )+,#R*+-)+' 'he internal environment is the environment that has a direct impact on the "usiness. /ere there are some internal factors which are generally controlla"le "ecause the company has control over these factors. #t can alter or modify such factors as its personnel, physical facilities, and organi0ation and functional means, like marketing, to suit the environment. 'he important internal factors which have a "earing on the strategy and other decisions of internal organi0ation are discussed "elow. ,alue system 'he value system of the founders and those at the helm of affairs has important "earing on the choice of "usiness, the mission and the o"1ectives of the organi0ation, "usiness policies and practices. -ission and vision and o"1ectives ,ision means the a"ility to think a"out the future with imagination and wisdom. ,ision is an important factor in achieving the o"1ectives of the organi0ation. 'he mission is the medium through which the o"1ectives are achieved. -anagement structure and nature 'he structure of the organi0ation also influences the "usiness decisions. 'he organi0ational structure like the composition of "oard of directors , influences the decisions of "usiness as they are internal factors . 'he structure and style of the organi0ation may delay a decision making or some other helps in making quick decisions. #nternal power relationships 'he relationship among the three levels of the organi0ation also influences on the "usiness. 'he mutual co$ordination among those three is a an important need for a "usiness.

'he relationship among the people working in the three levels of the organi0ation should "e cordial. /uman resource 'he human resource is the important factor for any organi0ation as it contri"utes to the strength and weakness of any organi0ation . the human resource in any organi0ation must have characteristics like skills, quality, high morale, commitment towards the work ,attitude, etc. ' he involvement and initiative of the people in an organi0ation at different levels may vary from organi0ation to organi0ation. 'he organi0ational culture and overall environment have "earing on them. !ompany image and "rand equity 'he image of the company in the outside market has the impact on the internal environment of the company. #t helps in raising the finance , making 1oint ventures , other alliances, e%pansions and acquisitions , entering sale and purchase contracts , launching new products, etc. Brand equity also helps the company in same way. -iscellaneous factors 'he other factors that contri"ute to the "usiness success or failure are as follows:Physical assets and facilities :$ facilities like production capacity, technology are among the factors which influences the competitiveness of the firm. 'he proper working of the assets is indeed for free flow of working of the company.Research and development: $ 'hough R23 department is "asically done e%ternal environment "ut it has a direct impact on the organi0ation. 'his aspect mainly determine the company4s a"ility to innovate and compete.-arketing resources : $ Resources like the organi0ation for marketing, quality of the marketing men, "rand equity and distri"ution network have direct "earing on marketing efficiency of the company.&inancial factors

:$ factors like financial policies . financial positions and capital structure are also important internal environment affecting "usiness performances ,strategies and decisions. )5')R+ . )+,#R*+-)+' #t refers to the environment that has an indirect influence on the "usiness. 'he factors are uncontrolla"le "y the "usiness. 'here are two types of e%ternal environment. -icro )nvironment 'he micro environment is also known as the task environment and operating environment "ecause the micro environmental forces have a direct "earing on the operations of the firm. 6'he micro environment consist of the actors in the company4s immediate environment that affect the performance of the company. 'hese include the suppliers, marketing intermediaries, competitors, customers and the pu"lic7'he micro environmental factors are more intimately linked with the company than the macro factors. 'he micro forces need not necessarily affect all the firms in a particular industry in the same way. Some of the micro factors may "e particular to a firm. 8hen the competing firms in an industry have the same micro elements, the relative success of the firms depends on their relative effectiveness in dealing with these elements Suppliers n important force in the micro environment of a company is the suppliers, i.e., those who supply the inputs like raw materials and components to the company. 'he importance of relia"le source9sources of supply to the smooth functioning of the "usiness is o"vious. !ustomer 'he ma1or task of a "usiness is to create and sustain customers. "usiness e%ists only "ecause of its customers. 'he choice of customer segments should "e made "y considering a num"er of factors including the relative profita"ility, dependa"ility, sta"ility of demand, growth prospects and the e%tent of competition. !ompetition not

only include the other firms that produce same product "ut also those firms which compete for the income of the consumers the competition here among these products may "e said as desire competition as the primary task here is to fulfill the desire of the customers. 'he competition that satisfies a particular category desire then it is called generic competition.. -arketing #ntermediaries 'he marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. 'he marketing intermediaries are vital links "etween the company and the final consumers . &inanciers 'he financiers are also important factors of internal environment. long with financing capa"ilities of the company their policies and strategies, attitudes towards risk , a"ility to provide non$financial assistance etc. are very important. Pu"lic Pu"lic can "e said as any group that has an actual or potential interest in or on an organi0ation4s a"ility to achieve its interest. Pu"lic include media and citi0ens. :rowth of consumer pu"lic is an important development affecting "usiness. -acro )nvironment -acro environment is also known as :eneral environment and remote environment. -acro factors are generally more uncontrolla"le than micro environment factors. 8hen the macro factors "ecome uncontrolla"le , the success of company depends upon its adapta"ility to the environment. Some of the macro environment factors are discussed "elow: )conomic )nvironment )conomic environment refers to the aggregate of the nature of economic system of the country, "usiness cycles, the socio$economic infrastructure etc. 'he successful "usinessman visuali0es the e%ternal factors affecting the "usiness, anticipating

-iscellaneous factors 'he other factors that contri"ute to the "usiness success or failure are as follows:Physical assets and facilities :$ facilities like production capacity, technology are among the factors which influences the competitiveness of the firm. 'he proper working of the assets is indeed for free flow of working of the company.Research and development: $ 'hough R23 department is "asically done e%ternal environment "ut it has a direct impact on the organi0ation. 'his aspect mainly determine the company4s a"ility to innovate and compete.-arketing resources : $ Resources like the organi0ation for marketing, quality of the marketing men, "rand equity and distri"ution network have direct "earing on marketing efficiency of the company.&inancial factors :$ factors like financial policies . financial positions and capital structure are also important internal environment affecting "usiness performances ,strategies and decisions. )5')R+ . )+,#R*+-)+' #t refers to the environment that has an indirect influence on the "usiness. 'he factors are uncontrolla"le "y the "usiness. 'here are two types of e%ternal environment. -icro )nvironment 'he micro environment is also known as the task environment and operating environment "ecause the micro environmental forces have a direct "earing on the operations of the firm. 6'he micro environment consist of the actors in the company4s immediate environment that affect the performance of the company. 'hese include the suppliers, marketing intermediaries, competitors, customers and the pu"lic7 'he micro environmental factors are more intimately linked with the company than the macro factors. 'he micro forces need not necessarily affect all the firms in a particular

industry in the same way. Some of the micro factors may "e particular to a firm. 8hen the competing firms in an industry have the same micro elements, the relative success of the firms depends on their relative effectiveness in dealing with these elements Suppliers n important force in the micro environment of a company is the suppliers, i.e., those who supply the inputs like raw materials and components to the company. 'he importance of relia"le source9sources of supply to the smooth functioning of the "usiness is o"vious. !ustomer 'he ma1or task of a "usiness is to create and sustain customers. "usiness e%ists only "ecause of its customers. 'he choice of customer segments should "e made "y considering a num"er of factors including the relative profita"ility, dependa"ility, sta"ility of demand, growth prospects and the e%tent of competition. !ompetition not only include the other firms that produce same product "ut also those firms which compete for the income of the consumers the competition here among these products may "e said as desire competition as the primary task here is to fulfill the desire of the customers. 'he competition that satisfies a particular category desire then it is called generic competition.. -arketing #ntermediaries 'he marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. 'he marketing intermediaries are vital links "etween the company and the final consumers . &inanciers 'he financiers are also important factors of internal environment. long with financing capa"ilities of the company their policies and strategies, attitudes towards risk , a"ility to provide non$financial assistance etc. are very important. Pu"lic Pu"lic can "e said as any group that has an actual or potential interest in or on an organi0ation4s a"ility to

achieve its interest. Pu"lic include media and citi0ens. :rowth of consumer pu"lic is an important development affecting "usiness. -acro )nvironment -acro environment is also known as :eneral environment and remote environment. -acro factors are generally more uncontrolla"le than micro environment factors. 8hen the macro factors "ecome uncontrolla"le , the success of company depends upon its adapta"ility to the environment. Some of the macro environment factors are discussed "elow: )conomic )nvironment )conomic environment refers to the aggregate of the nature of economic system of the country, "usiness cycles, the socio$economic infrastructure etc. 'he successful "usinessman visuali0es the e%ternal factors affecting the "usiness, anticipating prospective market situations and makes suita"le to get the ma%imum with minimi0e cost. Social )nvironment 'he social dimension or environment of a nation determines the value system of the society which, in turn affects the functioning of the "usiness. Sociological factors such as costs structure, customs and conventions, mo"ility of la"our etc. have far$reaching impact on the "usiness. 'hese factors determine the work culture and mo"ility of la"our, work groups etc. Political )nvironment 'he political environment of a country is influenced "y the political organisation such as philosophy of political parties, ideology of government or party in power, nature and e%tent of "ureaucracy influence of primary groups etc. . 'he political environment of the country influences the "usiness to a great e%tent. .egal )nvironment .egal environment includes fle%i"ility and adapta"ility of law and other legal rules governing the "usiness. #t may include the e%act rulings and decision of the courts. 'hese affect the "usiness and its managers to a great e%tent. 'echnical )nvironment

'he "usiness in a country is greatly influenced "y the technological development. 'he technology adopted "y the industries determines the type and quality of goods and services to "e produced and the type and quality of plant and equipment to "e used. 'echnological environment influences the "usiness in terms of investment in technology, consistent application of technology and the effects of technology on markets.