UNIT – II

Economic environment
The term economic environment refers to all the external economic factors that influence
buying habits of consumers and businesses and therefore affect the performance of a company.
These factors are often beyond a company’s control, and may be either large-scale (macro) or
small-scale (micro).

Macro factors include:

 Employment/unemployment
 Income
 Inflation
 Interest rates
 Tax rates
 Currency exchange rate
 Saving rates
 Consumer confidence levels
 Recessions

Micro factors include:

 The size of the available market

 Demand for the company’s products or services
 Competition
 Availability and quality of suppliers
 The reliability of the company’s distribution chain (i.e., how it gets products to
customers)

While companies often can’t control their economic environment, they can evaluate economic
conditions before choosing to enter a particular market or industry or pursue other strategies.

Socio-cultural Environment
The socio-cultural environment is referred to as the social system as well as the culture of the
people. the socio-cultural environment includes social customs, values, codes of conduct,
beliefs, traditions, etc. Every business is influenced by the socio-cultural environment;
therefore, it is essential to examine the environment and make strategies accordingly.
Factors Affecting Socio-cultural Environment

The important factors affecting socio-cultural environment are as follows:

1. Culture
2. Language
3. Religion
4. Social Systems
5. Level of Education
6. Customer Preferences
7. Social Institutions
8. Population Growth Rate

Culture

Culture is described as shared motives values, beliefs, identities, and interpretations or

meaning of significant events that result from common experiences of participants of
collectives and are transmitted across age generations.

The culture that exists within a society or community has an overwhelming impact on any
business. It has been an established fact that the culture drives people’s behaviour, innovation
and customer service.

Language

Because of diversity, people in different states, and countries use different languages to
communicate. An organisation operating in different states or countries should have
its business communication designed in a way that can be comprehended by the local
audience. English is accepted as a universal business language.

Religion

Religion even decides the way people think of work. As a result, religion influences enterprise
and its operations. Many companies adapt their working processes according to the religion of
a given state or country in terms of the holidays, working hours, food habits, a way of dressing,
etc.
Social Systems

The way an individual interacts and socialises with other individuals in the society is called the
Social system. It includes family systems, marriage, caste systems, etc. Social systems influence
the consumption habit of people.

For example, with an increasing number of families, the demand for fast foods and ready to cook
foods has increased.

Level of Education

Education is about teaching, learning skills and knowledge. Education changes the lifestyle of
people, their thoughts and the way of doing work. The level of education changes state-wise.
However, in many countries, the level of education has a tendency to increase.

The education level and level of literacy of the population of a given country are indicators of the
quality of their potential workforce.

Customer Preferences

With the spread of global communication and facilitated travel opportunities, certain social
behaviours are getting similar globally. these days, humans around the world watch the same
movies, listen to the same music, play the same video games and use the same internet websites.

Apparently, the taste and habits of the population are becoming the same. This social trend is
called global convergence.

Social Institutions

Social institutions such as family, economics, religion, education and state define the collective
modes of behaviour. They prescribe a way of doing things. Secondary institutions are derived
from primary institutions.

Population Growth Rate

The increases in the number of individuals in a population. The rise in demand for food
ultimately depletes natural resources needed by everyone for living.
Competitive Environment
A competitive environment is where different businesses compete by using various
promotional strategies, marketing channels, and pricing methods within a given market. It
involves how competition affects businesses and how organizations adjust their strategies to
compete effectively. This environment is common, where companies offer similar products or
services to the same target audience. An environment becomes highly competitive when more
businesses sell similar products or services. This system usually has set regulations that
competing companies follow. The two main types of competitors businesses often have
include:

 Direct competitors: They offer the same or similar products. For example, jewellery
companies compete directly with each other as they offer the same satisfaction to
consumers.
 Indirect competitors: These are businesses offering different products or services that
can compete. For example, companies producing smartphones and cameras can
indirectly compete as consumers often use smartphones as cameras.

How to excel in a competitive environment

If you're a business development, management, or marketing professional, consider learning

how to use market competition to foster company growth. You can follow these steps to
ensure a business remains competitive in the industry:

1. Research competitors

Competing in a given market requires identifying the differences between competitors and the
company. This can involve comparing business models and how their products relate to
consumers' needs and preferences. Consider conducting a competitor analysis on significant
competitors to learn more about their businesses. If they're creating similar products and using
a more efficient production process, consider analyzing how to adjust the business model to
attain equivalent profitability levels. If they're offering lower prices, you can attempt selling at
that price count or justify your prices by producing superior products.

2. Determine your ideal customer profile

A business's success often depends on marketing effectively to a target audience rather than
broadly. Consider exploring social media, hosting focus groups, or conducting surveys to learn
the characteristics of the people buying your products and determine the ideal profile to target.
Once you have an ideal customer profile, you can better align your branding and marketing
efforts to suit the audience.
3. Distinguish the brand

When comparing products, customers often make assumptions based on their understanding
of a brand. This process depends on customers interacting with brand advertisement messages
and building strong connections with them. For example, while many winter coats help people
feel warm, customers can first patronize brands matching their unique interests. This might be
hiking, fashion, or snowboarding. Let the brand image align with the target audience's interests
and values. This can help distinguish the business from competitors and build meaningful
customer connections.

4. Emphasize providing positive customer experiences

Happy customers receiving excellent customer service and shopping experiences are likely to
remain loyal to a business. Because returning customers are crucial to a company's success,
having them can help improve brand reputation, profitability, and market share. If customers
understand that they can trust your services, they can choose the brand over competitors and
even recommend it to their friends, colleagues, or family. Try to direct the business's efforts
toward offering positive customer service and experiences to encourage them to make more
purchases, increasing the company's revenue and market position.

International Environment
The international business environment is a complex network of economic, political, legal, and
cultural forces that shape how organisations conduct international business. It consists of
external and internal factors that impact a company’s success or failure in different markets.

This concept involves understanding the global forces that impact businesses of all sizes. These
elements shape how companies conduct their operations and make decisions from
macroeconomic trends to geopolitical tensions. Globalisation has made it easier for businesses
to go beyond local or regional markets, creating new opportunities while presenting new
challenges.

The key elements in the international business environment are

 One key factor in an international business environment is economic stability. This

includes an analysis of GDP growth rates, inflation, currency exchange rates, and trade
barriers. Companies must consider how a country’s economy might affect its cost
structures and profitability when choosing which nations to target for operations or
investment.
  Political instability can be another significant factor when making decisions about
expanding abroad. Companies must be aware of uprisings, war, and other forms of
conflict that can disrupt business operations. The policies of a country’s government
also need to be considered in terms of taxes, regulations, and labor laws.
 Geography is another key factor as it affects the logistics of transporting goods,
accessing new markets, and recruiting staff. Accessibility to natural resources such as oil
or minerals should also be considered depending on the industry involved.
 Technology plays an increasingly important role in international business operations
today due to advances in communication and digital infrastructure. Businesses must
understand how adopting new technologies might affect their competitive landscape or
open up new product or service opportunities.

The Benefits of the International Business

There are various benefits associated with conducting International Business, as

follows:

 By expanding into different markets, companies can gain access to new customers and
increase their profits. It also allows them to diversify their operations to reduce risk and
capitalise on opportunities in other markets.
 Conducting International Business can help organisations become more efficient and
cost-effective. It allows them to benefit from economies of scale, obtain lower-cost
resources, and utilise the latest technologies available in different markets.
 Companies can expand their brand visibility and reach a more extensive customer base
by conducting business globally. This can increase sales and brand recognition in the
global market.
 By operating in different markets, companies can access new opportunities and gain
valuable insights into customer behavior and preferences. This can help them develop
better products/services and make more informed decisions.
 It allows companies to explore different markets and expand their operations.
 This helps organisations identify growth opportunities and plan their strategies
accordingly.
 International businesses can benefit from the economies of scale that come with
operating in multiple markets.
 Companies have access to a broader pool of resources due to international trade, which
may not be available locally.
 International businesses can benefit from competitive advantages such as lower
production costs, tax incentives, etc., due to differences in the economic environment
across countries.
 By understanding the international business environment better, companies can reduce
risks such as foreign exchange rate fluctuation, political instability, etc.
  The international business environment also helps organisations to become more
innovative and flexible in their operations, which is essential for staying ahead of the
competition.
 International businesses can leverage cultural diversity to create unique products and
services that capture more extensive markets.

The Challenges of the International Business Environment

 The international business environment is complex and dynamic, making it difficult for
companies to predict the outcomes of their decisions accurately.
 International trade regulations and policies can vary from country to country, making it
hard for companies to comply with them at once.
 International markets tend to be more competitive due to differences in the economic
environment, political stability, and cultural preferences across different countries.
 Language barriers can become a significant obstacle when conducting International
Business, especially if the company doesn’t have knowledgeable personnel about
different cultures and languages.
 International businesses may face higher costs associated with production or
transportation due to exchange rate fluctuations or taxes imposed by foreign countries
on imported goods.
 International businesses may also face difficulties regarding intellectual property
protection in foreign markets as laws vary from country to country.
 It is subject to political instability and other external factors that can negatively affect a
company’s operations.

The international business environment is complex and dynamic, making it difficult for
companies to predict outcomes accurately. Companies must have a thorough knowledge of the
international business environment before entering any foreign market to better understand
the local regulations, cultural environment, and competitive landscape.

This will enable them to reduce risks associated with International Business and take advantage
of potential opportunities that come with operating in multiple markets.

Scope of the International Business

 Understanding the scope of the international business environment enables companies

to identify opportunities for growth and devise strategies accordingly.
 Companies can benefit from economies of scale and resource access due to
international trade.
 Companies may benefit from competitive advantages such as lower production costs or
tax incentives if they operate in multiple markets.
 Knowledge about the international business environment also helps organisations
reduce risks associated with foreign exchange rate fluctuations, political instability, etc.
  It can help organisations become more innovative and flexible in their operations,
allowing them to stay ahead of the competition.
 Cultural diversity can be leveraged to create unique products and services that can
capture larger markets

Business Environment with reference to

Global Integration
Global integration refers to the process of increasing the degree of economic and political
integration among countries around the world. This can be done through a variety of means,
including treaties, trade agreements, and infrastructure projects. Read more Business articles
here.

The business environment is the set of factors that affect how businesses operate. This includes
things like the economic conditions, the legal and regulatory environment, and the social and
cultural environment.

Global integration means the process with which the local Indian market opens up to the global
economy. Consequently, it amounts to letting foreign factors influence India’s local business
environment.

The process of global integration of India’s business environment began in 1991. The following
elements were largely responsible for this:

1. Liberalization

2. Privatization

3. Globalization

Liberalization
Every government imposes restrictions on the way its citizens conduct business activities. One
way of doing this is by making it compulsory for people to obtain several licenses and
permissions for business. This process, for example, was called ‘License Raj’.

Liberalization basically refers to the removal of these restrictions. This happens when the
government removes unnecessary license requirements, allows more freedom in conducting
business, dilutes regulation and reduces taxes. Another way to do it is by making imports and
exports easier.
Liberalization has been responsible for several large MNCs coming to India. The government
has been able to attract crores of Rupees as foreign capital because of it.

Privatization
Privatization simply means allowing private players and companies to conduct business. This
did not happen commonly before 1991 because the government controlled many industries. It
also implies withdrawal of the state’s interference in business.

The main objectives of privatization are to reduce the burden on tax-payers, encourage private
competition, facilitate capital inflow, etc. Some common modes by which a government indulge
in privatization include disinvestment, franchising, public-private partnerships and liquidation of
public sector undertakings.

Due to privatization, there are very few government companies remaining in India now. The
ones that remain do not even enjoy a monopoly. Government companies like Air India, ONGC,
LIC and HAL have to compete with private companies and MNCs. As a result, India’s economy
has become more diverse and growth-oriented.

Globalization
The restricted nature of India’s economy before 1991 had made it over-dependant on local
companies. Indian firms only competed amongst each other. Foreign companies, thus, could
not even think of working here. This finally changed when India adopted globalization.

Globalization, in simple words, means growing inter-dependence between countries with

regards to business and trade. Modern means of communication and transportation technology
have made this possible. Even international organizations and treaties between countries have
played a big role in globalization.

There are several benefits of globalization. For example, many new markets like insurance,
transportation, and banking services have grown due to it. Furthermore, people now have
access to more choices and international brands because of free trade between countries.

Comparative Analysis
Comparative analysis is the process of comparing items to one another and distinguishing their
similarities and differences. When a business wants to analyze an idea, problem, theory or
question, conducting a comparative analysis allows it to better understand the issue and form
strategies in response.

A business might conduct this type of analysis to analyze things with obvious differences or
items with both differences and commonalities. Healthcare businesses, for example, may
conduct this analysis to compare and contrast two different types of medications. Other
businesses might conduct a comparative analysis to examine two different production
processes to determine which is more effective. Typically, a business conducts a comparative
analysis to determine:

 The strategies of indirect and direct competitors

 The financial health of a business, including its investments and profit margins
 Accounting strategies, such as budgets
 How trends affect a target audience
 Emerging opportunities in technology, marketing or related functions

Why is a comparative analysis important?

It's important to conduct comparative analyses to gain a better understanding of a problem or

answer relevant questions. Here are the primary goals companies aim to achieve through the
comparison of data sets, documents or processes:

Providing a frame of reference for data

A comparative analysis details how data or processes compare to one another and explains
how they relate. This provides context for the analysis so the differences and similarities in the
relationships between data sets are clear. For example, an auto manufacturer may compare the
safety features of two or more models to determine how they affect sales or which features
require improvement. This type of analysis might provide in-depth data on each feature and
provide historical data to make comparisons about how each feature performs.

Narrowing focus

An effective comparative analysis also helps a company develop substantial and meaningful
reasons for conducting the comparison. The data a company gathers for a comparative analysis
that supports claims or arguments is not random but thoroughly researched evidence. The
reason for conducting an analysis might be to present conflicting arguments and examine both
sides or to prove or disprove an argument.

For example, an auto manufacturer's analysis might prove that certain safety features prompt
an increase in auto sales. The analysis provides and confirms data that highlights how side
airbags are a more popular feature than traction control. This allows a manufacturer to focus
on improving and promoting the features customers want when buying a new car.

Major Factors to Consider in International

Business
Various factors drive international business activities. Here are some of the major factors that
businesses much focus on when entering a foreign market:

Economic Factors
The economic factors affecting the international business environment include target market
size, the cost involved, currency and exchange rate, inflation, etc. All these economic factors
directly influence the profitability of international businesses. Therefore, entrepreneurs should
analyze these factors extensively before starting with international trade operations.

Social factors
Social and cultural restrictions play a huge role in the growth of an international business. For
example, most businesses try to avoid countries like Libya, Uganda, Afghanistan, etc., for lack of
social and political stability. Hence, conducting thorough research on the social environment of
a country is also very important.

Legal factors
Each country has its legal framework. For international businesses, it is mandatory to be well-
versed with these legal norms. The most essential legislative frameworks to start a business
include – labor laws, consumer laws, data security laws, etc.

Behavioral factors
Respecting the cultural beliefs of the host country’s customers is a must. Your potential
customers can be very sensitive toward these beliefs. Therefore, for an international brand
trying to make a mark in a new market, knowing and respecting these beliefs is required.
Geographical factors
Geographic factors are a key part of international businesses. For example, factors like logistics,
supply chain needs, skills, etc., depending on geographical aspects. Hence, geographical
research can help international businesses set-up their initial operations seamlessly.

Business Policy
Business Policy defines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the
problems and issues without consulting top level management every time for decisions.

Business policies are the guidelines developed by an organization to govern its actions. They
define the limits within which decisions must be made. Business policy also deals with
acquisition of resources with which organizational goals can be achieved.

Business policy is the study of the roles and responsibilities of top level management, the
significant issues affecting organizational success and the decisions affecting organization in
long-run.

Features of Business Policy

An effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the implementation will

become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There
should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by
the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not imply that a policy
should be altered always, but it should be wide in scope so as to ensure that the line
managers use them in repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of
those who look into it for guidance.