BUSINESS ENVIRONMENT

http://www.mckinsey.com/insights

Prof. Gurpreet Singh Arora

Factors Influencing Business Decision

Types of Environment

INTRODUCTION TO BUSINESS ENVIRONMENT

DEFINITION & MEANING:

The environment includes factors outside the firm which can lead to opportunities for or threats to the firm. Although there are many factors ,most important of the factors are socio-economic, technological, supplier, competitors, & government. -------- Glueck & Jauch

Internal Environment
1. Value System of the Founders It influences--- Choice of Business ----Mission & objectives ------- policies & Practices

Eg. TATA

Internal Environment
2. Mission & Objectives
They guide business domain, priorities, direction of development, business philosophy, business policy etc. http://www.missionstatements.com/fortune_500_ mission_statements.html

Internal Environment
3. Mngmt. Structure & Nature:The organizational structure, the composition of Board of Directors influence business decisions. 4. Internal Power Relationships:Support that mngmt. enjoys from employees, shareholders, Board of directors influences decisions & their implementation.

Internal Environment
5. Human Resources: Skill, quality, morale, commitment, attitude of human resource contribute to strength or weakness of an organization. 6. CO.s image & Brand Equity:It matters while raising finance, forming joint ventures, soliciting marketing intermediaries, entering sale or purchase agreement, launching new products.

Internal Environment

Other factors:Physical assets R&D & technological capabilities Mkt.ing resources, Financial factors,

External Environment

MICRO
1. Supplier 2. Customer 3. Competitor 4. Marketing Intermediaries 5. Publics

MACRO
1. S ocial cultural 2. T echnological 3. E conomic 4. P olitical & legal 5. I nternational 6. N atural

Micro Environment
1. Suppliers (reg. supplies, inventory, vendor dev., vertical integration) 2. Customers( creation & sustenance, category, choice of segment) 3. Competitors(desire comp., generic comp., product form comp., brand comp.,) 4. Marketing Intermediaries(agents, merchants, phy. Distri. firms, mkt. service agencies & financial intermidiaries

Micro Environment
5. Publics:- It is any group that has an actual or potential interest in or impact on an organization's ability to achieve its interests. Media publics, citizen action publics & local publics are some examples

SOCIO-CULTURAL
1. Culture & Globalization 2. Culture determines goods & services 3. People's attitude to business & work 4. Caste system 5. Education 6. Family & marriage 7. Ethics in business 8. Social responsibility 9. Social audit 10.Corporate governance

Technological Environment

Technology & Business Increased Productivity Need to spend on R&D Fast changing technology Rise & decline of products & co.s

Problem of techno structure System complexity Demand for capital Social change High expectation of consumers

Economic Environment

Alternative Economic systems Per capita Income & National income Growth Strategy Agriculture, Industry, Services Infrastructure Money & Capital mkt

Population Economic policies

Political Environment

Constitution Role of legislature Role of executive Role of judiciary Role of government The form of the Govt. (federal) The ideology of the ruling party (rightist pro Business, leftist- nationalization) (nationalization of banks, LPG policy, Slowdown of II gen. reforms) The strength of the opposition

The role and responsibility of the bureaucracy Political stability The velocity of Govt. policies, plan and programmes Socio-economic legislations Politico-legal institutions

International Environment

Rising opportunities Improving quality Competition from MNCs Capital & technology transfers How & in which mkt to enter International political factors India & WTO

THE WTO IMPACT

GATT/GATS

TRIMS

TRIPS

Liberalization of trade in goods and services

Liberalization of international investments

Provides monopoly power to owners of intellectual property

increases competition from foreign goods/service

Increases foreign investment and competition from foreign firms

Target to domestic firms

Threat to domestic firms

Benefits consumers

Benefits the economy

Increases competitiveness of domestic firms

Facilitates joint ventures and technology acquisition

Facilitates global sourcing

Benefits the domestic firms

Opportunity for Indian firms to export

Facilitates foreign investment by Indian firms

Encourage globalization of Indian firms

Natural Environment

Manufacturing depends on physical inputs Mining & Drilling depend on natural deposits Agriculture depends on nature Trade betw. two regions depends on geographical factors Transport & communication depends on geographical factors