Business Environment (B.E/b.e)
Business environment is defined as sum total of all complex & dynamic elements that interact among themselves to give result. In india liberalisation was introduced in 1991 so economic openness was intered into Indian economy froim early decades of 1990’s. It was during this time we find ‘HLL’ taking over ‘Kissan’ from ‘UB’ group, ‘Lakme’ from ‘TATA’ group et. The interaction may or maynot lead to desirable results. This was felt by the ‘USHA’ fan which died as it could not keep pace with the changing circumstances. However khaitan fan arrived. The elements of business environment is complex & it is very difficult to predict the future results. For e.g. we cannot say that whether the market will accept a particular innovation or not. It is known that puff refrigeration was first introduced by ‘VOLTAS’ but market did not accepted. It was then taken up by Godreg which popularised this idea.
Future of business environment
In general business environment is a wide concept. But still we can traceout the features as follows.
1. Elements are complex – This is the prime feature of business environment where the elements interact among themselves in a complex mannaer. For this reason the path taken by subsequent events is uncertain.
2. Process is dynamic – The interaction of the elements of business environment is a dynamic process. In other words it basically tells us about the procedure in which the system moves. Thus the interaction of the elements is not static ( type writer -> electronic typewriter -> computer).
3. Multifaceted – The study of business environment simply tells us that its multifaceted. In other words the results may not be one but many & that’s why the effects can also be many (SATYAM scam).
4. Impact – The effects of business environment generates sudden impacts for e.g. when liberalisation was introduced in India there was a tremendous impact on the pharmaceutical companies. However no such impact was observed in agricultural sector.
5. Different impacts – It is known that due to business the complex elements as they interact, generates certain impact however the impacts as different for different sector & even after across different farms in the same sector. For eg. There has been tremendous impact in the pharmaceutical sector after 1991. It was much more intense for Dr. Reddy’s lab compared to Ranbaxy.
6. Technology – Over the years technological advancements have been witnessed by society. Under such cases these technological changes had a pronounced effect on the interaction of the elements of business environment (computer, mobile etc.)
7. Competition – B.E offers a competitive atmospheres to the firms. Thus it supports the idea of survival of the fittest. In other words in the post liberalisation period in India we find that the Indian firms had to compete with the foreign firms because 51% of equity participation of the foreign firm was allowed.
8. Prediction – It is not possible to predict beforehand the path that will be interaction of these complex elements. To some extent the uncertainty remains.
Types of Business environment
When we consider B.E. we basically speak about the various classes. In general we bave 3 classes
1. Local environment
2. Macro environment
3. Micro environment
In this regard we can consider the following:
1. Local environment – This refers to a particular environment of which has a very limited scope of operation. In other words we are speaking of the specific office or a firm we know that the environment differs from office to office. Thus this exercise is characterised by four features
a. Culture – This basically refers to the work culture that we can experience. There is a lot of difference between public & private sector e.g. an individual working in the public sector would interested in a 10-5 job but if the same individual if work in a private sector staying on still the work finishes.
b. This basically refers the short term goals e.g. in public sector the aim would be maximisation of social welfare whereas in the private sector it would maximisation of commercial profits.
c. Mission – This basically relates to the long term goals of the firm.This can vary across firms e.g. A particular firm might want to earn a steady profit while another might try to maximise sales revenue.
d. H.R. – Each firm tries to improve upon HR. Labour is an important input & basic function of production. This clearly rells us that each firm wants improve upon its HR. So as to enjoy some advantage for features
2. Macro environment
macro word comes from the great word macros means large in other words the scope of operation is very wide. Scholars feel that a macro environment is basically determined by six basic features this is noted as follows
Political & Legal
i. Demographic – India is the second most populated country in the world after china. It supports the world population of 16%. This means out of every seven(7) individual in the world on is indian. This huge population has an adverse effect on eployment, standard of living etc. we know that 33% of population lies below the poverty lines. In other words this has a negative impact on business environment.
ii. Economics – It is understood that due to this huge population other problems are coming up like proper housing, sanitation, employment etc. Thus the per capita income is very low & that’s why most people are unable to follow minimum standard of living. The corporate houses of firms nowadays think about reaching out to this poor group. For this reason they feel that it is good so in our time to sell the products in smaller amount. E.g. detergents & shampoos in smaller amount.
iii. Global – This basically means integrating to the rest of the world. This was followed by india after 1991, when the liberalisation programme was introduced in other words this basically tells us when interacting with foreign countries for overall improvement global cooperation across nations is necessary e.g. there was a proposal to set a gas pipeline from iran to india via Pakistan.
iv. Political & Legal – The political decisions affect the B.E & this has some legal aspect also. E.g. NRI Swaraj Paul wanted to buy the Indian firm escorts. The present owners nanda’s approach the government for help. The government passed a rule that no NRI can buy a firm & so escorts got saved.
v. Technology – Everyday technology is being improved which generates a positive impact on B.E. Society must be technologically literate & aware. Thus communication has become very fast due to technology.
vi. Social – Various social changes have been introduced to as to make the daily life more somple. These social changes actually had a positive impact on the society which in turn generated a beneficiary influence on environment ( abolition of polygamy, child marriage). 3. Micro Environment
The word micro comes from the Greek word micros which means small. Thus the scope of micro environment is smaller than the macro environment but larger than local environment. In other world micro environment lies in between the other two environments.
The idea of the micro environment can be explained by considering the basic features.
i. Threat to rivalry – Acros firms selling the same type of product there is always the threat of rivalry. Each firm more or less produces the same product. And they are trying to attract same group of customers. For this reason there is intense rivalry. In general each firm tries to increase its market share. If these firms are satisfied with their market share their rivalry becomes week. But if it is not so the rivalry will be very high. In other words they will continuously try to improve upon their market share by spending more on selling costs i.e. advertisement (pepsi vs coke)
ii. Threat to new entrants – The existing firms carryout business but sometimes the new entrants try to enter this are however they find entry difficult in this area because of the following business. a. Then it find it difficult to get the access to the resources. Getting human resource & ordinary worker is difficult sometimes b. A new firm will not be able to enjoy the advantages of large scale production c. Distributors will not be interested to push the product. d. The new firms will get absolutely no advantage from the leaning curve.
iii. Threat of substitutes – Most products are introduced by firms for sometime it can remain as a monopoly. However the situation dramatically changes when the market is flooded with substitutes. Sometimes these are very cheap substitutes & sometimes it is observed that they can replace the initial item ( Khadim replacing BATA).
iv. Bargaining strength of supplier – The supplier basically represent the supply curve. Where supply means the amount of output they want to sell in the market of what they are actually selling. If demand is very high the strength of the suppliers rise. But if demand is less their strength will fall.
v. Bargaining strength of buyers – This is related with demand curve. Consumers demand certain products & again their strength depends on the availability of items in the market.
Andrew Grove has mentioned the sixth point for micro environment, which he refers to as complementary.
‘TATA has introduced the TATA cars analyse this exercise by using micro environment’.
Maruti 800 cars were introduced in 1985 & the production was stopped around 2009-10. Discuss this with respect to product life cycle. The idea of product life cycle basically deals with the life span of a product. In general the product life cycle consists of five stages. Which are as follows:
- 1. Stage1 – Embryonic – This is the first stage & the product is launched. Most of the consumers are not aware of the product & the firm knows it has to give sometime. The cost of the product being high thus the firm is not able to take advantage from large scale production.
- 2. Stage2 – Growth – This is the 7th stage where product is known in the market. Some 1st time buyers have purchased the product & the market response is good. Output increases & the cost of production is now moderate. So price charged is also very reasonable.
- 3. Stage3 – Shakeout – Most of the 1st time buyers have purchased the product & slowly replacement demand is coming in. The firm now starts thinking about cost control measures. Because it knows that if it is not done the product or the firm might die.
- 4. Stage4 – Maturity – This is the 4th stage & there are hardly any 1st time buyers left. The firm now seriously takes the issue of cost control measures.
- 5. Stage5 – Decline – This is the last stage of the product & very soon the product is going to die. The firm has reached to this stage which means that either the cost control measures are not implemented or they were not effective.
A Chart/figure is here refer the attached word file to see the same.
Changes under Business Environment
We know that business environment is defined as a complex & dynamic system whereby certain elements interact among them.
In general changes are continuous & changes are dynamic. In this regard you would like to mention the following points:
a) The types of changes
b) The reasons for such change
c) The path taken after such changes are implemented.
Vijay Mallaya has purchased shaw Wallace analyse this event by using the proper elements of Business Environment.
The exercise can be discussed by considering the changes of Business Environment. It consists of 4 steps.
1. Scanning – The initial procedure is to scan the changed events e.g. when there was a problem in shaw Wallace. Vijay Mallaya started scanning the events.
2. Monitoring – This refers to a closer inspection & understanding ground realities. So after some time vijay mallaya started monitoring the events of shaw Wallace.
3. Assessing – This means taking stock of the situation & understanding ground realities. So vijay mallaya could assess that the present owners of shaw Wallace would not be able to hold on for a long.
4. Prediction – Some limited prediction is possible. Vijay mallaya predicted that shaw wallce would soon have a new owner. He expressed a desire to buy shaw Wallace as this was what it is.
Here something is missing, will be filled up……….
Thus their will always be the demand for cars if the rise of cost of petrol is reasonable.
2. Tells how the
3. It allows the firm to recognise opportunities & threats
4. If there are opportunities the firm can take maximum advantage from it.
5. If there are threats firm can take suitable action to tackle it.
6. Business environment allows the firm to propose new ideas.
7. It allows the firm to understand the test & preferences of consumer.
8. It allows the firm to generate new survival techniques.
9. With the help of the analysis the firm can differentiate between systematic & un-systematic risk.
10. It allows the firm to estimate market response.
Disadvantages of Business Environment
1. Exercise is based on data & market survey.
2. The data collection might be faulty.
3. The data collection might be correct eh analysis might be wrong.
4. Future prediction is not possible on the Business environment.
Case Study:- 1. Nano car 2. Mobile phone uses Family & Social Class – Fa
Family & Social Class –
3. Social need
4. Emotional help
5. Economic help
2. Gatekeeper – Restricts information.
3. Decider – Where, When & How much to buy.
4. Buyer – Mother decides what to buy.
1. Young bachelors – Insensitive to price
2. Newly married couple
3. Full Nest I – 1st Child Anniversary
4. Full Nest II – Child goes to school
5. Full Nest III – youngest child goes to college.
6. Empty Nest I – Children leaving home – Maximum income
7. Empty Nest II – Parents leave alone, retired, children provide they extra money with their
8. Solitary Survival – One person has died & the other person
1. UPPER UPPER – Very rich, having unlimited property & usually they don’t work (Royal people)
a) Person born in a rich family ascribed status
b) Improved status – achieved status
2. LOWER UPPER – Rich, having inherited property, but they work to add to their wealth (mallaya, tata).
3. UPPER MIDDLE – Small businessman & professionals.
4. LOWER MIDDLE – Salaried, individual with income more than spending.
5. UPPER LOWER – Salaried persons with income more or less equal to expenditure.
6. LOWER LOWER – Very poor, living from hand to mouth.
Factors affecting the social Class
1. Occupation – a) Higher Class – Business or inherited property.
b) Middle Class – Salary
2. Association – a) Higher Class – Big Clubs
b) Middle Class – Middle Clubs
c) Lower Class – Local Clubs
3. Income – a) Higher Class – More
b) Middle Class – Less
c) Lower Class – Less
4. Possession – a) Higher Class – Costly camera as a status symbol
b) Middle/Lower Class – Cheap camera to store all memories.
5. Influence – a) Higher Class – Have more influence.
b) Middle/Lower Class – Less information.
1. Outlet Choice – H – Big Departmental Store
– M – Small departmental store
– L – Local Store
2. Coupon Sale – H – x
– M –
– L – x
3. Hard Goods – H – Status symbol
– M – Keep memory stored
– L – x
4. Leisure – H – Foreign tour
– M – Hill area
– L – x
5. Spending Habits – H – Fashionable
– M – Traditional
– L – x
6. Saving habits – H – Share Market
– M – Bank
– L – x
Culture is the custom and values we have.
Factors affecting culture:
- 1. Family
- 2. Education
- 3. Religion – Social customs & believes, some religious rules are more strict than legal rules (sati, douri etc.)
- 4. Mass media
- 5. Language – There are 836 dialects in India.
- 6. Technology
- 7. Aesthetic – Drama, music, poetry, literature
- 8. Rituals – Custom & belief
check the word file: