Business Environment

Flashcards for reviewing the vocabulary and key concepts of the Business Environment.

Business

Organized efforts of different enterprises for supplying various goods and services to the ultimate consumers for a profit.

Environment

All external forces which have an important bearing of the functioning of the business.

Business Environment

The climate or set of conditions, economic, social, political or institutional in which business operations are conducted.

William Gluck and Jauch's Definition of Business Environment

Contains the external factors that create opportunities and threats to the business, including socio-economic conditions, technology, and political conditions.

Keith Davis's Definition of Business Environment

The aggregate of all conditions, events and influences that surround and affect it.

Reinecke and Schoell's Definition of Business Environment

All those external things to which it is exposed and by which it may be influenced directly or indirectly.

Wheeler's Definition of Business Environment

The total of all things external to firms and industries that affect the function of the organisation.

Arnold J. Toynbee on Challenges and Civilization

Civilizations require challenges to survive; environment also contains hostilities and dangers that may be overcome.

System Approach

Business produces goods and services for wants satisfaction, using inputs like raw material, capital, labour from the environment.

Social Responsibility Approach

Business should fulfill its responsibility towards several categories of the society such as consumers, stockholders, employees, government etc.

Creative Approach

Business gives shape to the environment by facing challenges and availing opportunities in time, bringing changes in the society by attending to the needs of the people.

Business Environment Significance

Helps to Understand Internal Environment, Economic System, Economic Policy, Market Conditions

Business Environment

The sum of conditions which surround man at a given point in space and time, including physical aspects of the planet Earth, biotic communities, social, economic and political functions.

Understanding Internal Environment

Important for business enterprises to understand its internal environment, such as business policy, organisation structure etc.

Understanding Economic System

Essential for business to know about the role of capitalists, socialist and mixed economy as different economic systems influence business in different ways.

Understanding Economic Policy

Business environment helps to understand government policies such as export-import policy, price policy; monetary policy, foreign exchange policy, industrial policy etc.

Understanding Market Conditions

Necessary for an enterprise to have the knowledge of market structure and changes, including demand, supply, monopolistic practices, government participation in business etc.

External Forces

Business Environment includes all the forces, institutions and factors which directly or indirectly affect Business Organizations.

Specific Forces

Investors, customers, competitors and suppliers within the Business environment.

General Forces

Social, Legal, Technological, Political, etc. that affect the Business indirectly.

Inter-relation

All the forces and factors of Business Environment are inter-related to each other.

Uncertainty

It is very difficult to predict the changes of Business Environment.

Dynamic

Business environment is highly flexible and keeps changing.

Complex

It is difficult to understand the impact of Business environment on the companies.

Relativity

The impact of Business environment may differ from company to company or country to country.

Economic Environment

Consists of Gross Domestic Product, Income level at national level and per capita level, Profit earning rate, Productivity and Employment rate, Industrial, monetary and fiscal policy of the government etc.

Social Environment

Consists of the customs and traditions of the society in which business is existing.

Political Environment

Constitutes all the factors related to government affairs such as type of government in power, attitude of government towards different groups of societies, policy changes implemented by different governments etc.

Legal Environment

Constitutes the laws and various legislations passed in the parliament.

Technological Environment

Refers to changes taking place in the method of production, use of new equipment and machineries to improve the quality of product.

Dimensions of Business Environment

All the factors, forces and institutions which have direct or indirect influence over the business transactions.

General Environment

The most important dimension of business environment as businessman cannot influence or change the components.

Economic Environment Factors

Have immediate and direct impact on businessmen, necessitating timely actions.

Banking Sector Reform Effects

Led to many attractive schemes of deposits and lending money.

Changes in Economic and Fiscal Policy

Have encouraged NRIs and foreign investors to invest in Indian companies.

Reforms in Leasing and Financing Institutions

Allow private sector entry, benefiting customers.

Aspects of Economic Environment

Role of Private and Public sector, Rate of growth of GDP, GNP, and Per Capita Income, Rate of Saving and Investment, Balance of Trade, Balance of Payment.

Aspects of Economic Environment

Transport and Communication System, Money Supply in the Economy, International Debt.

Social Environment

Consists of the customs and traditions of the society in which business is existing. It includes the standard of living, taste, preferences and education level of the people living in the society where business exists.

Components of Social Environment

May not have immediate impact on the business but in the long run has great impact on business.

Indian Social Environment

Demand for reservation in jobs for minority and women; equal status of women by paying equal wages; automatic machines and luxury items in middle class families; social movements to improveeducation level of girl child; health and fitness trend has become popular..

Aspects of Social Environment

Quality of life, Importance or place of women in workforce, Birth and Death rates, Attitude of customers towards innovation, life style etc. Population, Traditions, customs and habits of people, Education and literacy rates, Consumption habits

Political environment

Constitutes all the factors related to government affairs such as type of government in power, attitude of government towards different groups of societies, policy changes implemented by different governments etc.

Political Environment Impact

Has immediate and great impact on the business transactions so businessman must scan this environment very carefully.

Aspects of Political Environment

Present political system, Constitution of the country, Profile of political leaders, Government intervention in business, Foreign policy of government, Values and ideology of political parties

Legal environment

Constitutes the laws and various legislations passed in the parliament. The businessman cannot overlook the legislations because he has to perform his business transactions within the framework of legal environment.

Indian Legal Environment

Deregulation of capital market, removal of control from the foreign exchange and liberalisation in investment.

Legal Environment Aspects

Laws and legislative acts; Legal policies related to licensing; Legal policies related to foreign trade; Laws to keep a check on Advertisements; Statutory warnings essential to be printed on label; Foreign Exchange Regulation and Management Act.

Technological environment

Refers to changes taking place in the method of production, use of new equipment and machineries to improve, the quality of product.

Technological changes

Improve quality and more benefits for customers.

Technological Environment Aspects

Various Innovations and Inventions, Scientific Improvements, Developments in IT sector, Import and Export of Technology, Technological Advances in Computers.

External Environment

Includes shareholders, competitors, customers, society, government laws and regulations, policies and technology

Micro Environment

Includes those players whose decisions and actions have a direct impact on the company.

Macro Environment

Consists of the uncontrollable factors.

Suppliers of Inputs

An important factor in the external micro environment of a firm is the supplier of its inputs such as raw materials and components.

Customers

The people who buy and use a firm's product and services are an important part of external micro environment

Marketing Intermediaries

Play an essential role of selling and distributing its products to the final customers.

Competitors

Different firms in an industry compete with each other for sale of their products.

Publics

Any group that has an actual or potential interest in or impact on the company's ability to achieve its objective.

Economic Environment

Includes all those forces which have an economic impact on business.

Political-Legal Environment

Includes the activities of three political institutions, namely, legislature, executive and judiciary which usually play a useful role in shaping, directing, developing and controlling business activities.

Technological Environment

Implies systematic application of scientific or other organised knowledge to practical tasks or activities.

Global or International Environment

Plays an important role in shaping business activity specially with the liberalisation and globalisation of the economy.

Socio-Cultural Environment

Includes people's attitude to work and wealth, ethical issues, role of family, marriage, religion and education and also social responsiveness of business.

Demographic Environment

Includes the size and growth of population, life expectancy of the people, rural-urban distribution of population, the technological skills and educational levels of labour force.

Natural Environment

Influences business in diverse ways as the ultimate source of many inputs such as raw materials and energy, which firms use in their productive activity.

Ecological Environment

Due to the efforts of environmentalists and international organisations such as the World Bank the people have now become conscious of the adverse effects of depletion of exhaustible natural resources and pollution of environment by business activity.

Internal Environment

Factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency.

Value System

The ethical beliefs that guide the organisation in achieving its mission and objectives.

Mission and Objectives

The business domain of the company, direction of development, business philosophy, business policy etc are guided by the mission and objectives of the company.

Organisation Structure

The organizational structure, the composition of the board of directors, the professionalism of management etc are important factors influencing business decisions.

Corporate Culture

An important factor for determining the internal environment of any company.

Quality of Human Resources

The characteristics of the human resources like skill, quality, capabilities, attitude and commitment of its employees etc could contribute to the strength and weaknesses of an organisation.

Labour Unions

Collectively bargains with the managers for better wages and better working conditions of the different categories of workers etc.

Physical Resources and Technological Capabilities

Determine its competitive strength which is an important factor for determining its efficiency and unit cost of production.

Economic Environment

The sum total of the economic conditions and the nature of the economy in which the business has to operate and compete.

Economic System

Must define what to produce, how to produce it and for whom to produce it.

Capitalist Economy

An economic system in which the means of production are privately owned and operated for profit.

Socialist Economy

An economic system in which the state owns and controls the means of production.

Mixed Economy

An economic system that combines elements of both capitalism and socialism.

Capitalist Economy

Characterized by private ownership of resources, free markets, and profit-driven production.

Socialist Economy

Characterized by state ownership, centralized planning, and distribution based on need.

Mixed Economy

Combines private and public ownership, market mechanisms, and government intervention.

Features of Capitalist Economy

Private Property, Freedom of Enterprise, Profit Motive, Consumer Sovereignty, Competition, Limited Government Intervention.

Socialist Economy: Collective Ownership

Resources are owned and controlled by the state or community.

Socialist Economy: Central Planning

Production and distribution decisions are made by a central planning authority.

Socialist Economy: Social Welfare

Emphasis on providing basic necessities and reducing inequality.

Features of Mixed Economy

Coexistence of Private and Public Sectors, Government Regulation, Social Welfare Programs.

Economic Planning

The Government must have a definite plan, as to how to utilize the resources to the maximum extent.

Indian Planning Commission

Setup in 1950, entrusted for formulating five year plans so that it can bring the India among the top most country.

Infrastructure

A network of services on which the smooth functioning of an economy depends.

Basic Infrastructure

Power, communication, transportation and banking.

Key Factors Influencing Infrastructure

Government policies play a key role in financing, constructing and maintaining infrastructure.

Trade Cycle

Alternating periods of expansion and contraction in economic activity.

Phases of Trade Cycle

Expansion, Peak, Contraction, Trough.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time, resulting in a decrease in purchasing power.

Deflation

A sustained decrease in the general price level of goods and services, resulting in an increase in purchasing power.

Economic Policies

Refer to the actions taken by a government to influence and control the economy.

Monetary Policy

Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.

Fiscal Policy

Government's use of spending and taxation to influence the economy.