Business environment

1. BUSINESS
ENVIRONMENT

2. 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.

3. 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.

4.  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 society’s
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.

5. 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

6. BUSINESS OBJECTIVES

7. 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.

8. 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.

9. 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.

10. 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.

11. Achieve Financial Soundness
 : 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.

12. Achieve Economics self-
sufficiency
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.

13. 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 pre-
determined 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.

14. 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.

15. 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

16. WHAT IS BUSINESS
ENVIRONMENT ?
 Business Environment is a relationship between
a business’s 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.

18. NATURE OF BUSINESS
ENVIRONMENT
 Risk and uncertainty
 Profit Maximisation
 Competition
 Technology oriented
 Change

19. COMPONENTS OF BUSINESS
ENVIRONMENT

20. 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.

21. 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

22. 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

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

24. Micro Environment

25. Macro Environment

26. DETERMINANTS OF BUSINESS ENVIRONMENT
Economic policies : . Political Conditions Resources
Industrial Policy Political Stability
Natural resources
Trade Policy
Corruption rule of law Human resources
and
Monetary Policy governance including
business
law and regulations
Fiscal Policy

27. 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.


28. 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.

29. 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.

30. 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

31. 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 India’s fiscal situation is most
unsatisfactory.

32. 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

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

34. 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.

35. 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?