Business environment

What is business environment?

Business environment is the sum of those
inputs to an organization which are under
the control of other organizations or interest
groups or are influenced by interaction of
several groups, such as economy.
Business Environment is sum or collection
of all internal and external factors such as
employees, customers needs and
expectations, supply and demand,
management, clients, suppliers, owners,
activities by government, innovation in
technology, social trends, market trends,
economic changes, etc. These factors
affect the function of the company and how
a company works directly or indirectly.

The environment of a business may be

considered as static or dynamic. When the
environment forces do not show a
significant change, they are termed as
static or stable environment. But the
environment of a modern organization is
dynamic because of frequent changes. The
nature of change is unpredictable.
Example of environment affecting business:
a) frequent changes in government
economic policies
b) increased competition.

Characteristics of Business Environment

 1. Surrounding Situation
2. Business environment is Complex
3. Environment is Dynamic
4. Business environment is Multi-faceted
5. Scope of business
6. Environmental factor differ from country
to country

Benefits of scanning business environment:

1) First
mover advantage by looking at
unmet needs.
2) Customer delights when marketers are
able to know stated needs, unstated,
secret, and real needs and present the
product.
3) Trendy products can be brought out in
market.
4) Competitor moves can be anticipated
and countered.
5) Adapting to the uncontrollable
environment becomes easy.
6) Marketer is able to know the
organizational strengths, capabilities
and related opportunities.
7) Marketer is able to remove weakness,
and counter threats from the
environment.

Types of business environment:

 A) MICRO B) MACRO
ENV. ENV.
A.1)
A.2) Demographic
TASK ENV.
INTERNAL
ENV.
Suppliers Management Economic
Customers Employees Natural
Competitors Company Technological
itself
Socio-culture

MICRO ENVIRONMENT:
Micro environment variables are close to
the firm and it includes the suppliers,
marketing intermediaries, customer ,
competition and publics.
It also refers to the internal environment of
the company and affects not only marketing
but also the departments such as
management, finance, human resource etc.
1) Customers :
Customers have the most direct micro
economic impact on a business.
Knowing your ideal customer types
and developing effective marketing
campaigns are very important for
building a customer base and
 generating revenue streams.

2) Employees:
Employees produce, sell or service the
goods and service that drive your
business. The availability of qualified,
motivated employees for your type is
vital to economic success. You may
have to pay more salary to attract a
limited number of available and
specialized workers.

3) Suppliers:
Sourcing goods used in production or
resale and distributing your inventory
to customers are important as well.
Manufacturers rely on materials
suppliers for production.
4) Competitors:
The level of competition also impacts
your livelihood. It must be noted that
the nature and intensity of competition
highly influence the firm’s products
and services. Product differentiation is
something that helps the firm to beat
the cut-throat competition in the
market.

MACRO ENVIRONMENT:
The company is not alone in its
business environment. It is surrounded
by and operates in a larger context.
This context is micro environment. It
consists of all the forces that shape
opportunities, but also pose threats to
the company. The macro environment
is uncontrollable.
1) Demographics environment:
The study of statistics of births,
deaths, age, gender, education
patterns, family influences refers to
demographic environment.
Business need to be aware of
changes in the general population.
Is the age distribution changing?
Are household patterns changing?
So we must know about the
demographic environment of our
segmentation.
2) Economic environment :
The economic environment can
have a major impact on businesses
by affecting patterns of demand
and supply. Companies need to
keep a track of relevant economic
indicators and monitor them over
time.
In a recession, people lose jobs, or
worrying about that happening to
them. This makes consumer less
willing to spend their disposable
income. However in economic
expansion, job security makes
consumer more willing to spend
their disposable income.
Economic environment also
comprises the nature of economic
and economic policies of
government.
Nature of economic system:

The broad national economic

environment is set by nature of
economic system. As the nature of
ownership of means of production,
production relations, role of
planning is also seen.
Types of economic system:
a) Socialist society: Socialist
economy is an economic
system which is controlled and
regulated by the government to
ensure welfare and equal
opportunity to the people in the
society. In such an economy the
factors of production are all
state-owned. So all the
factories, machines, plants etc
is owned by a community in
control of the state. Example:
China, Cuba.
b) Capitalist society: Capitalist
economy is an economic
system which is controlled and
regulated by private individuals.
There is absence of
government intervention.
Example: Australia, Canada.
c) Mixed economy: A mixed
economy is an economy
organized with some free
market elements and some
socialistic elements, which lies
on a continuum somewhere
 between pure capitalism and
socialism. Mixed society
socialize selective industries
that are deemed essential or
that produce public goods.
Example: France, India.

3) Socialand culture environment:

Every nation has a set of core
cultural beliefs that are passed
from generation to generation.
Changes in these core beliefs
affect consumer purchase.
Sociological factors such as caste
structure, customs, cultural
heritage, respect for sonority etc.
might have a far reaching impact
on marketing of products. For
instance, the nature of goods and
services in demand depends upon
people’s attitudes, customs, socio-
cultural values. For example: In
India people worship cows while in
America people eat beef.

4) Technologicalenvironment:
Technology shapes the future of
any society. The development of
new technology can dramatically
affects the needs and wants. For
example: Internet completely
changed the way people
communicate. That shift to internet
resulted in new consumer needs
 and wants, opening the door for
smart companies to take
advantage of that opportunity.
Today, the pace of technological
change constantly provides
opportunity for new products.
5) Political environment:
It provides the legal framework
within which the marketer is to
function. The viability of business
depends upon the ability with which
it can meet the challenges arising
out of political environment. It is
influenced by political
organizations, stability of
government, government
intervention in businesses etc.
6) Natural environment:
The physical and geographic
factors can play a dominant role in
constituting the non-economic
environment and thereby affecting
the business. The application of
modern technology in industry
leads to rapid economic growth at
a huge social cost deterioration of
physical environment around us
that is air pollution, noise pollution
etc.
Megatrends
Most of the trends discussed above
will only affect certain segments of
consumers and businesses. Their
effects may diminish over time.
However some forces can affect
nearly every segment of our
civilization and their effects last
generations, these forces are
megatrends might be light bulbs,
telephones. Today, the internet,
smart phones fall into that
category.

Strategies to deal with marketing

environment:
1) Anticipating and adapting: In the
business world, it doesn’t
matter if we are a firm at top,
what matter is our ability to
adapt to changes in market
dynamics. Sometimes,
marketing managers can
anticipate change in
environmental conditions and
adapt them appropriately. With
information gleaned from
forecasting, marketers can help
their organizations adapt
internally to anticipated
environmental demands. For
example: Sweet sellers
anticipate the festival season
and increase their supplies of
sweets.

2) Smoothingor leveling:
As sale of any product do not
 remain same throughout the
year, so this strategy focuses
on smoothing the sales
throughout the year. When the
demand is low, an organization
may give some inducements,
like price reduction, or some
complementary items to
encourage customers to buy its
product. When the demand is
high, company may charge
premium.
For example: air plane tickets
are cheaper when there is less
demand and costlier when
demand is higher.
3) Rationing:
By using rationing, companies
leads to establish a set of
priorities for using scarce
resources. For example: I have
5 teachers in my college, I have
150 students of BBA and 100
students of B.com, then I will
allocate 3 teachers for BBA and
2 teachers for B.com. As here
demand is more in BBA so I will
allocate more resources to that
department.
Or
During the summer there is
great demand for milk. So
mother dairy allocates more
milk to supply and keep less for
 preparation of butter, ghee, etc.
4) Contracting:
During the peak time there may
be more demand for our goods.
So to match that demand
companies can enter into
agreements with commercial
banks or financial institutions for
supply of working capital and
with the suppliers of raw
materials to ensure smooth
supply of raw materials.
5) Coalescing:
Coalescing is a term which
means grow together. Two or
more companies can work
together to grow. It is formed to
achieve certain common
objectives. It can be done by
merger or joint venture.
Merger is voluntary fusion of
two companies on broadly
equal terms into one legal
entity. A merger combines all
the resources of both the
organization.
Joint venture is a business
arrangement in which two or
more parties agree to pool their
resources for the purpose of
accomplishing a specific task.
In this company combines only
those resources which are
necessary for completing the
 specific task.
The coalition can exercise
greater influence over the
elements in the environment.

6) Procurement of key personnel:

It refers to offering employment
to dynamic persons working in
other organization to increase
our effectiveness.
By hiring such individuals we
can get the knowledge about
the operations and policies of
competitors.