UNIT I

Business – Meaning features Business environment – Meaning, Nature and

significance, Micro and Macro environment of Business, Business strategy and
its relation to environment.

BUSINESS

Meaning:-

 Business refers to an economic system in which goods & services are exchanged for one another or
money, on the basis of their perceived worth.
 Business refers to all those economic activities which are concerned with the production or purchase
of goods & services for the purpose of sale at a profit.

Definition:-

 According to R.Urwivk, “Business is profit can be more the main objective of a business than
betting is the main of making profit & acquiring wealth through the satisfaction of human
wants”.
 According to F.C. Hooper, “Business means the whole of complex commerce & industry the
basic industries & the network of ancillary industry, distribution, banking, insurance,
transportation and so on”.

OBJECTIVES OF BUSINESS

1. Profit Making:-

Profit is backbone of any business enterprise. It is excess of income over expenses. Profit is the main
motivator, strong sustainers & judicious allocator of resources, objective indicator of efficient productivity &
a solid basis for growth expansion & survival. It enables a businessman to realize his other objectives .

ex:- Hospitals schools, Charitable institution & government agencies are not concerned with profits oriented

2. Growth:

It is another primary objective of business. It should grow in all directions over a period of time. An
enterprise which remains stagnant for long is presumed to suffer from an organic defect. There are various
strategies adopted to achieve growth:-

i. Add more products or markets

ii. Integration forward or backward.
iii. Increase market share
iv. Diversify business into new areas.
v. Expand markets Etc..

3. Power:-

Business has vast resources such as money, materials, men & know-how .These resources confer
enormous economic & political power on owners & managers of business ventures.

4. Employee satisfaction & development:-

 The Chinese proverb says, “ if you want to plan for a year, plant corn. If your want to plan for
thirty plant a tree. But if you want to plan for 100 years plant a men”. Carrying for employee
satisfaction & their development has been one of the objectives of enlightened business enterprises.

5. Quality of Products & Services:-

This is one of the major objectives of business. Those who insisted on & persisted in quality survived
competition & stayed ahead of other on the market persistent quality earns brand loyalty, a vital ingredient of
success.

6. Market leadership:-

To earn market leadership is yet another objective of business. To earn a niche for oneself in the
market innovation is the key factor. Innovation may be in product, advertising, distribution, finance or in any
other field.

7. Challenging:-

Business offers vast scope & poses formidable challenges. Success in a business venture speaks of
the abilities of individuals who own & manage & failure, their inability & incompetence. The real worth of
an individual is tested more in business than in any other profession.

8. Service to Society:-

Business is a part of society & has several obligations towards it. The following are:

i. Providing safe & quality of goods at reasonable prices.

ii. Providing employment.
iii. Patronizing cultural & religious activities.
iv. Maintaining & protecting environment.

ENVIRONMENT
Environment is the sum of all living & non living things that surround an organism or group of
organism. Environment includes all elements, factors & conditions that have some impact on the growth &
development of certain organism.
BUSINESS ENVIRONMENT
Meaning:-
Business environment is an environment in which business is carried out.
FEATURES OF BUSINESS ENVIORNMENT
1. Environment is Complex:-
A business environment has a plethora of factors events, conditions, & influences arising from a
variety of sources. Therefore, it is very difficult to understand all the factors affecting a given
environment at any time. Although we can understand it in parts, it is impossible to grasp it in totality.

2. Environment is Dynamic:-
Business also keeps a changing constantly. This is due to a wide range of influencing factors.
These factors create dynamism in the environment causing it to continuously change its shape &
character.
3. Environment is Multi faceted:-
Due to complexity & dynamism of a business environment, it continuously changes its shape &
character. However, different observes view the changes differently. Therefore a particular observer
might see a specific change in the environment as an opportunity while someone else might perceive it a
threat.
4. Environment has long term impact on business:-
Environment has long lasting impact on functioning of business organisations. Their growth &
profitability depends upon the environment under which they have to operate. Environment influences
business enterprises. Such influences may be positive or negative & may affect the profitability,
efficiency & development of business.
5. Environment influences business organization :-
Businesses organisational have limited capacity to influence business environment as it is the
result of government policies & social & technological changes which are basically external variables.
6. Environment and business planning go together:-
Business environment & business planning are closely related concepts. In fact, planning is
necessary in order to derive maximum benefit from favourable environment. Similarly, planning is
useful for dealing with the problems created by unfavourable environment.
NATURE OF BUSINESS ENVIRONMENT:
Business Environment is very complicated, dynamic and multi-dimensional and affects different
business institutions in different ways. It exhibits many characteristics like:
1. Complex
Environment comprises of many factors. All these factors are related to each other. Therefore, their
individual effect on the business cannot be recognised. This is perhaps the reason which makes it difficult for
the business to face them.

2. Dynamic
As is clear that environment is a mixture of many factors and changes in some or the other factors
continue to take place. Therefore, it is said that business environment is dynamic.

3. Uncertain
Nothing can be said with any amount of certainty about the factors of the business environment
because they continue to change quickly. The professional people who determine the business strategy take
into consideration the likely changes beforehand.
4. Multi-dimensional
Business environment is related to the local conditions and this is the reason as to why the business
environment happens to be different in different countries and different even in the same country at different
places.
5. Interdependent components
 The different factors of business environment are co-related. For example, change in the import-
export policy with the coming of a new government.
In this case, the coming of new government to power and change in the import-export policy are
political and economic changes respectively. Thus, a change in one factor affects the other factor.

The nature of Business Environment is simply and better explained by the following approaches:

(i) System Approach:

In original, business is a system by which it produces goods and services for the satisfaction of wants, by

using several inputs, such as, raw material, capital, labour etc. from the environment.

(ii) Social Responsibility Approach:

In this approach business should fulfill its responsibility towards several categories of the society such as

consumers, stockholders, employees, government etc.

(iii) Creative Approach:

As per this approach, business gives shape to the environment by facing the challenges and availing the

opportunities in time. The business brings about changes in the society by giving attention to the needs of the

people.

Significance of Business Environment:

Business Environment refers to the “Sum total of conditions which surround man at a given point in space

and time. In the past, the environment of man consisted of only the physical aspects of the planet Earth (air,

water and land) and the biotic communities. But in due course of time and advancement of society, man

extended his environment through his social, economic and political function.”

In a globalised economy, the business environment plays an important role in almost all business enterprises.

The significance of business environment is explained with the help of the following points:
(i) Help to understand internal Environment:

It is very much important for business enterprise to understand its internal environment, such as business

policy, organisation structure etc. In such case an effective management information system will help to

predict the business environmental changes.

(ii) Help to Understand Economic System:

The different kinds of economic systems influence the business in different ways. It is essential for a

businessman and business firm to know about the role of capitalists, socialist and mixed economy.

(iii) Help to Understand Economic Policy:

Economic policy has its own importance in business environment and it has an important place in business.

The business environment helps to understand government policies such as, export-import policy, price

policy; monetary policy, foreign exchange policy, industrial policy etc. have much effect on business.

(iv) Help to Understand Market Conditions:

It is necessary for an enterprise to have the knowledge of market structure and changes taking place in it. The

knowledge about increase and decrease in demand, supply, monopolistic practices, government participation

in business etc., is necessary for an enterprise.

Micro and Macro environment of Business

Micro Environment:-
The micro environment of a company consists of elements that directly affect the company. It includes
suppliers, customers, market intermediaries, competitors & customers etc.
Micro environment includes
1. Customers:-
Customers are the people money to acquire an organisation’s products. A consumer occupies the
central position in the marketing environment. The marketer has to closely monitor & analyze changes in
consumer tastes & preferences & their buying habits.
2. Competitors:-
Competitors are the other business entities that compete for resources. A study of the competitive
scenario is essential for the marketer, particularly threats from competition. In modern age an absolute
monopoly is very rare thing. Most of the firms have to work in some type of competition such as
monopolistic competition or oligopoly.
3. Suppliers:-
 Suppliers provide raw materials, equipment, services & so on. Suppliers with their own bargaining
power affect the cost structure of the industry. They constitute a major force, which shapes competition in
the industry. The quality of the commodity & the cost of production are considerably influence by the
supplies of the inputs.
4. Market Intermediaries:-
It includes agents & brokers who help the company to find customers. It is a link between the
company & the consumer. They refer to the different levels in the chain from the production unit to the final
customer. The chain incorporates the stockiest, the wholesalers, the distributors, the retailers etc.
5. Public:-
Public is any group that has actual or potential interest in the business. The prospects of firm depend
upon the society in which it has to work & sell its products. In a homogenous society, the job of the firm is
easy. The people have almost the same habits like & dislikes values & ethical norms. In a heterogeneous
society the job of the firm is difficult. A particular product may be acceptable to particular of the society but
not acceptable to some other sections.
Macro Environment:
Macro environment forces that creates opportunities & pose threats to the business units. The macro
environment consists of
1. Economic Environment:-
It refers to those economic factors which have impact on the working of business. It consists of
economic factors that influence the business in a country. These factors include gross national product,
corporate profit, inflation rate, employment, balance of payments, interest rates consumer income etc.
2. Political Environment:-
Political environment affects the different business units. A stable & dynamic political environment
is necessary for business growth. Political environment includes political stability in the country, relation of
the government with other countries, welfare activities of government, centre-state relationship & views of
opposition parties towards business. If the political system is stable & efficient then the business grows.
3. Socio-cultural Environment:-
Socio-Cultural environment refers to social & cultural factors which are beyond the control of
business units. Such factors include attitude of people to work, family system, caste system, education
system, habits, language, religion has considerable components of business environment. Religion has
considerable effect on business. Some religious restrict their followers they do not allow its followers to
engage in leather industry, wine making etc. similarly, the social environment of business also includes
social factors like customer, traditions, values, beliefs, poverty literacy, life expectancy rate etc.
4. Technology Environment:-
It is the most important factor which affects the business enterprise. The faster changes in technology
create problems for business enterprises. Products have shorter life span than the past because of rapid
technological developments. Technology provides various advantages. Success in many industries depends
on innovation & research. To promote innovation & research some companies establish research &
development departments in their enterprises.
5. Legal Environment:-
It refers to the set of laws & regulations which influence the business organisation & their operations.
every business organisation has to obey & work within the framework of law. The legal environment is
derived partly from the political climate in a country & has three distinct dimensions to it:
a. The law of the home country
b. The law of the foreign markets
c. International law in general
6. Natural Environment:-
It refers to geographical & ecological factors which are beyond the control of the enterprise. It
includes natural resources, weather & climatic conditions, landforms, rainfall, environmental pollution etc.
Climate & weather conditions affect the location of certain industries like textile industries. Similarly
environmental pollution in the form of air pollution, have caused disturbances in ecological balance.
7. Demographic Environment:-
Demographic factor include size, growth rate, age composition, sex composition etc of population,
family size, economic stratification of population, educational level, caste, religion etc. all these
demographic factors are relevant to business. These factors affect the demand for goods & services. High
population growth rate indicates an enormous increase in labour supply. Population with varied tastes,
preferences, beliefs, temperaments etc. gives rise to differing demand pattern & calls for different marketing
strategies.
8. International Environment:-
A final component of the general environment is actions of other countries or groups of countries
that affect the organisation. Governments may act to reserve a portion of their industries for domestic firms
or may subsidize particular types of businesses to make them more competitive in the international market.
Business strategy and its relation to environment:

Business strategy is the set of decisions and actions that determine the long-term goals and direction
of a company, and how it allocates its resources to achieve those goals. The business environment plays a
critical role in shaping and influencing the formulation and execution of business strategy. Here's how
business strategy is related to the environment:

1. Environmental Analysis:
 Before developing a strategy, businesses need to conduct a comprehensive analysis of the
external environment. This involves assessing the macro environmental factors (such as
economic, social, technological, political, and environmental factors) and micro
environmental factors (such as customers, competitors, suppliers, and intermediaries).
 Environmental analysis helps businesses identify opportunities and threats in the market,
understand customer needs and preferences, assess competitive dynamics, and anticipate
changes in regulatory or industry trends.
2. Strategic Positioning:
  Based on the insights gained from environmental analysis, businesses can determine their
strategic positioning within the market. This involves identifying the unique value
proposition they offer to customers and how they differentiate themselves from competitors.
 The business environment influences strategic positioning by shaping consumer behavior,
market trends, technological advancements, and competitive landscape. Businesses must
align their positioning with the prevailing environmental conditions to effectively capture
market share and create sustainable competitive advantages.
3. Opportunity Identification and Exploitation:
 A dynamic business environment presents both opportunities and threats to businesses.
Effective business strategy involves identifying and exploiting opportunities while
mitigating risks.
 By closely monitoring changes in the environment, businesses can identify emerging trends,
market gaps, unmet customer needs, or technological advancements that present growth
opportunities. Strategies can then be developed to capitalize on these opportunities, whether
through product innovation, market expansion, strategic partnerships, or other means.
4. Risk Management:
 Environmental factors can pose risks and uncertainties to businesses, including economic
downturns, regulatory changes, technological disruptions, or competitive threats.
 Business strategy should include risk management measures to anticipate and mitigate
potential risks. This may involve diversifying product portfolios, expanding into new
markets, building strategic alliances, or developing contingency plans to respond to
unexpected events.
5. Adaptation and Flexibility:
 The business environment is constantly evolving, requiring businesses to be adaptable and
flexible in their strategies. What worked yesterday may not work tomorrow due to changes
in market dynamics or competitive pressures.
 Businesses need to continuously monitor the environment, gather feedback, and adjust their
strategies accordingly. This may involve making incremental changes or pivoting to entirely
new strategic directions to remain relevant and competitive.