BUSINESS ENVIRONMENT

Environment

The environment is the result of changing social and economic and political forces which creates challenges, opens up new opportunities and affects the strength and weaknesses of various business segment.

Meaning of Business

In general business refer to all activities that are being organized and carried on with an important purpose, viz; earn profit by supplying goods and services to consumers to satisfy their felt needs.

Modern business covers a complex field of industry and commerce which involve activities related to both production and distribution. These activities on the one hand satisfy societys needs and desires and on the other hand brings profit to business firms. Business include activities connected with production, trade, transport, finance, banking, insurance, advertising, and certain other activities related to industry and commerce.

DEFINATION OF BUSINESS

A business firm is an economic unit which is engaged in the production or distribution, or both the production and distribution of goods and services for the purpose of earning profits

BUSINESS OBJECTIVES

Maximum Profit
1.

Making profit is the primary goal of any business enterprise. All the efforts of a firm are directed towards the achievement of this object. A firm can earn maximum profits at the point where Marginal Cost (MC) and Marginal Revenue (MR) are equal. Marginal cost means the cost incurred on the production of an additional unit of a commodity. Marginal Revenue is the revenue received from the sale of such additional unit.

Maximise total sales revenue

1.

Second most important object of a firm is to obtain maximum sales revenue. The attainment of this object does not mean to have the maximum sale in terms of physical quantity but it means to obtain the maximum amount of revenue at the point when its marginal revenue is zero. No firm will take to increase its sales beyond this point, because beyond this point, the firm will be suffering a loss.

Minimum Cost
1.

Another important object of a business firm is to minimize the cost of production of producing goods and services to that these goods and services may be provided to the consumers at minimum possible price. To attain this object, the business firm makes continuous use of various techniques of cost central.

Establish long-run survival

1.

Long-run survival is a prime object of all the business firms. For this purpose, every firm makes best efforts to provide best quality of goods and services to its consumers at reasonable prices. Some business firms change their marketing strategies and marketing approach from time to time so that they may maintain the demand of their products in the market.

Achieve Financial Soundness

1.

: No business firm can continue for long time if it is not financially sound. Banks and financial institutions stress upon financial soundness of the firms to grant them any sort of financial assistance. Therefore, every business firm takes due care and precaution in the use of funds of the firm.

Achieve Economics selfsufficiency

1.

A business firm cannot be successful in achieving its objects if it depends only upon external sources for the programme of expansion and diversification. A firm should be self-dependent in economic affairs. If complete self-dependence is not possible, dependence on external financial sources should be minimum, for this purpose, all the business firms try to re-invest major part of their profits in their business.

Maximum welfare and employees satisfaction

1.

Some business firms aims at providing maximum facilities to their employees so that they may get maximum job satisfaction and thier efficiency and ability may be increased. Such firms spend huge amount on the welfare of their employees. The facilities of proper working conditions, canteen, education, training, incentive wage system, bonus etc., are provided to the employees. This is an important object and very helpful in the achievement of predetermined objectives of the firm because if the employees of a firm are satisfied they will contribute their best efforts to achieve the objectives of the firm.

Dominate the whole market

1.

Some business firms have an object of dominating the whole market. Such firms provide goods and services to consumers at the lowest possible price. They provide best offer-sale-services to the consumers. Such firms also aim at selling product to the maximum number of customers so that they can capture the market and establish their business empire.

Service to society

Business is a part of society and has several obligations towards it. Some of them are :

Providing employment Offer of better quality of life Contributing to the economic growth of the country

WHAT IS BUSINESS ENVIRONMENT ?

Business Environment is a relationship between a businesss actions and its environment. Environment is the surroundings of a business by which business influenced directly or indirectly. Where the political, economic, social and technological factors shopping a business environment are assessed by a business so as to devise future strategy.

NATURE OF BUSINESS ENVIRONMENT

Risk and uncertainty Profit Maximisation Competition Technology oriented Change

COMPONENTS OF BUSINESS ENVIRONMENT

Internal Environment

The internal factors are generally regarded as controllable factors because the company has control over these because the company has central over these factors; it can alter or modify such factors as its personnel, physical facilities, organization and functional means, such as marketing mix to suit the environment.

Determinants of internal environment

Mission and vision of the organization Management philosophy and strategy Industrial relations Corporate culture and values Line and staff relations Governance standards and codes Quality central system Team spirit among employees Work culture and socio-economic background of employees Job design and coordination Quality of internal communication Compensation system and career progression of employees Central system of the organization

External Environment

External environment of business consist of institutions, organizations and forces operating outside the Company. All these individually as well as collectively exercise their influence on the latter. Broadly external environment of business may be classified into (A) Micro Environment and (B) Macro Environment

The most prominent performs in the micro environment are the following
Suppliers of inputs Workers and their unions Customers Market intermediaries Competitors Public

Micro Environment

Macro Environment

DETERMINANTS OF BUSINESS ENVIRONMENT

Economic policies :

. Political Conditions

Resources

Industrial Policy Trade Policy

Political Stability

Natural resources

Monetary Policy

Fiscal Policy

Corruption rule of law and governance including business law and regulations

Human resources

Industrial Policy

Among various economic activities, industrial activity is more directly related to business. In fact, the present day corporate business has grown as an extension of industrial activity. Therefore, for analyzing economic environment of business, industrial policy of the government has to be created examined.

Trade Policy

Trade policy is an important factor in the economic environment of business. The basic objectives of trade policy are to promote exports, regulate imports, improve terms of trade, enhance export competitiveness and create conditions of export-led growth.

Monetary Policy

By monetary policy we mean the regulation of the money supply and the control of the cost and availability of credit by the central bank of the country through the use of deliberate and discretionary action for achieving the objectives of general economic policy.

Monetary Policy
The main objectives of monetary policy are: Maximum feasible output High rate of economic growth Fuller employment Price stability Greater equality in the distribution of income and wealth Healthy balance of payments
Instruments of monetary policy are the following: 1) Open market operations; 2) Bank rate policy; 3) Reserve requirement charges; and 4) Selective credit controls

Fiscal Policy

This policy refers to the process of shaping taxation and public expenditure in order to dampen the swings of the business cycle and the contribute to rapid economic growth with high employment and stable prices. This policy when mismanaged leads to fiscal imbalances which at times become unsustainable. At present Indias fiscal situation is most unsatisfactory.

Political Environment
Firms will be directly affected by the actions of government and other political events. The kind of political environment is conducive to business activity. Besides, the factor of political stability is important. In Countries like Afganistan and Iraq, business activity has suffered a lot due to political stability The country like India had legislations like the Monopolies and Restrictive Trade Practices Act (MRTP Act) and the Foreign Exchange Regulation Act (FERA). Both were restrictive in nature. The industries Act passed in 1951 aimed at both the development and regulation of industries in private sector. The SEBI Act now empowers SEBI to regulate the securities market. It is thus clear that even in a market economy like ours the modern corporate business is not entirely free

Resources

Natural resources covering available land, forests, minerals, fuels, rivers and water bodies and environment quality are a major determinant of a countrys potential output. These are the gifts or endowments of nature.

Human resources

Human resources refer collectively to the quantum and quality of the workforce and are among the key determinants of economic growth. The number of people in the work force directly depends on the population size and structure as well on the flows of migration and immigration. The quality of human resources depends upon education, training, skills, attitudes towards work, desire for self-improvement and even cultural outlook and is reflected in its efficiency and productivity. Productivity of human resources further depends upon the organizational culture and system, managerial effectiveness, motivation and the overall work environment.

REVIEW QUESTIONS

What are business objectives? Profit making is the primary goal of any business enterprise. Yes or No Discuss What is business environment? Discuss the nature and dynamism of business environment Explain Micro and Macro Environment. And discuss what are the factors included in both Environment What are the economic policies which determine the business environment?