Business Environment and Its
Constituents
Unit 1
Amlin David
Karunya University

Definition
• Business environment is defined as a
combination of all the internal and external
factors that influences a company during its
long run. Remember that both internal and
external factors can influence each other and
work together to effect a business

Constituents of Business
Environment
• Micro Environment
• Macro Environment

Micro and Macro Environment
• Micro environment is the nearby factors that
effect a company’s ability to serve its
customers such as the company itself,
customers, intermediaries, suppliers etc.
• Macro environment is a condition that exists
in the economy as a whole, rather than in a
particular sector or a region. Example Trends
in GDP, Inflation, employment, spending,
monetary and fiscal policy

Factors influencing Micro and
Macro Environment
Micro Environment
• Suppliers
• Customers
• Competitors
• Marketing Intermediaries
• Publics
Macro Environment
• Economic Environment
• Political Environment
• Socio Cultural Environment
• Demographic Environment
• Physical Environment
• Technological Environment
• International Environment

Micro Environment Factors

Suppliers
 These are the people who supply the raw
materials and components to the company.
 Sometimes, having one supplier for a
company’s products maybe more beneficial,
sometimes having just one suppler would have
monopoly over price.
 As a precaution, company’s could have more
than one supplier.

Customers
 Business exist only because of it’s customers.
 Monitoring customer activity has become an
important task for businesses.

Competitors
 A firms competitors may not always be the
companies producing products similar to it.
 Sometimes a company’s competitions could be
the produce products within the same range.

Marketing Intermediaries
 All the business organisations that in between
the supplier and the final customer.
 It could be : Agents, Dealers, Wholesalers.

Publics
 A company will always have to be in the right
limelight with the public.
 The media would be the vehicle for the
company to project the right image with the
outside world.

Macro Environment

Economic Environment
• Economic Conditions of the country. For
Example Nature of the Economy.
 Whether it is in Recession or boom period
 Level of Income and purchasing power of the
people

Political Environment
 Political environment is
important since it has a
close relationship with the
economic system and
economic policy.
 Political environment
would they lay down rules
for
i) Standards of product
ii) Packaging
iii)Promotion.

Socio Cultural Environment
• This element is also important since it covers.
A)Habits of the people.
B)Their language
C)Beliefs and values
D)Customs and traditions.
E)Tastes and preferences
• Level of education

Demographic Environment
• Demographic factors covers:-
A)Population of customers
B)Population growth rate
C)Life expectancy rate.
D)Family size
E)Occupational status

Physical Environment
• Physical factors would cover:-
1)Geographical factors.
2)Weather and climatic conditions

Technological Factors
• Technological factors would cover
1) Technological availability for producing the product.
2) Current technological standards that prevail in the
market. Example: When we Think About Computers
The latest development and technology on
• Hard Disk
• Ram
• Specifications.

International Environment
• It is important to note:
1)Recession happening in other countries.
2)Progression happening in countries
• Eg: India and China

What do companies do with all of
the environmental factors
• They Perform SWOT Analysis
 S-Strengths
W- Weakness
O- Opportunities
T- Threats

FUTURE BUSINESS TRENDS

Worldwide/ International Scene
Staff within the companies, in the company
would be trained in worldwide operations
rather than just in their own country wise
operation.
Parts or components for making a product.

Joint Ventures
• Many companies will
want to get into
markets of other
countries so they would
be tieing up of
companies to start of
new products. Eg Avi
Oil Pvt Ltd- Joined
venture Holders
Balmer & Cp Ltd,
NYCO SA, France

Mergers and Acquisitions
• Companies would want to buy – out the
competitors so they would broker financial
acquisitions and merge with other
companies.
• Example : Maersk acquired several other
shipping companies like Sea Land

Sourcing
• A lot of products and services will be
outsourced to lower cost or to create better
efficiency.
• Example: Call Centre, BPO’s which are
being outsourced by many companies in the
U.S. to India, Philippines and other
countries.

Indian Scenario
• Demographic and Social Environment
• Rise of Rural Market
• Small Firms see unprecedented growth
• Big firms may go global from India

Demographic and social
Environment
 Since the number of people in India have
increased and there is an increase in salaries.
 The number of people who can purchase
products have increase therefore it could be
more profitable for companies in India.

Rise of Rural Market
 The rural market of
India are now serving
people with increase
salaries and a more
profitable area for
business.

Small firms may see unprecedented
growth
 Indian small firms may grow a a good pace
since they can have their own niche markets.
 For Eg: Small banks operating in Metros like
Coimbatore could operate just here. Any bank
operating in the Rural areas would see an
increase since they would have an advantage
over other bigger banks.

Big firms may go global from India
 Larger companies have the scope of becoming
MNC’s since the companies would have
greater potential.
 Example TATA Company has bought Rolls
Royce and Range Rover from the U.K.
 Airtel has gone global since it has acquired 15
countries operations basically from Kuwait.
The parent company in Kuwait is called Zain.

Social Responsibility of Business
• Business has the social responsibility towards
Shareholders – Dividends, Reserves
Employees- Salaries, Working Conditions,
Training and development
Consumers- Better Quality products,
Information, After sales service
Community- Prevent Environmental
Pollution, Contribution to social causes,
Development of Rural lndia
Indian Nation- Hospitals, Schools, Libraries

Globalization and its effects
• V Stephen Gill: defines globalisation as the
reduction of transaction cost of trans border
movements of capital and goods thus of factors
of production and goods

Advantages of Globalization
• Globalization has
several advantages on
the following
1. Economic side
2. Cultural side
3. Technological
4. Social / Cultural
5. Ecological side

Economic side
1. Increase in Investments
2. No trade Barriers
3. Free trade zones
4. Exports are on the rise
5. Newer currencies

• Increase in investments : Developed
countries can invest in developing countries
• No trade barriers : Flexibility of corporations
to operate across the borders increases
• Free trade zones : Free trade zones are
formed having less or no tariffs
• Exports are on the rise : Due to development
of containerization for ocean shipping, the
transportation costs are reduced.
• Newer currencies : Capital controls reduce or
vanquish and newer currencies are now being
seen. Example: Euro

Social/ Cultural change as the result
of Globalization
• Multiculturalism Spreads : As there is
individual access to cultural diversity
• International travel and tourism increases and
immigration between countries increases

Technological developments
a)EVEN REMOTE AREAS OF THE WORLD ARE NOW
BEING CONNECTED
b)E-COMMERCE: BUYING AND SELLING ON THE
INTERNET HAS CREATED A GLOBAL COMMON MARKET
WHICH HAS A FREEDOM OF EXCHANGE OF GOODS
AND CAPITAL.
c)INTETRNET USAGE AND FREE INFORMATION: FREE
CIRCULATION OF INFORMATION AMONGST PEOPLE OF
DIFFERENT NATIONS.
d)HI- TECH CONNECTIVITY : DATA NOW FLOWS
THROUGH SATELLITES, THE INTERNET, WIRELESS
TELEPHONE IN ALL OUNTRIES.

Ecological Developments
• Global Environment problems are being
solved such as
a) Cross boundary environmental problems
b) Over fishing on oceans
c) Climate change
• Environmental protection in developed
countries Increases

Impact of Globalization in India
• Foreign products are now being allowed to be
sold in India
• Liberalization of the Indian Industries
• Foreign Countries can now invest in India
• Increase in economic prosperity
• Better Products
• Rise of Rural Markets

Thank you