Module 1 - An Overview of Business Environment PDF

**MODULE 1: AN OVERVIEW OF BUSINESS ENVIRONMENT** **[MEANING]** Business environment is the sum of all external and internal factors that influence a business. The term 'environment' is used to describe the context in which businesses is carried out. **[OBJECTIVES OF BUSINESS ENVIRONMENT ]** **1...

**MODULE 1: AN OVERVIEW OF BUSINESS ENVIRONMENT** **[MEANING]** Business environment is the sum of all external and internal factors that influence a business. The term 'environment' is used to describe the context in which businesses is carried out. **[OBJECTIVES OF BUSINESS ENVIRONMENT ]** **1. Knowledge of Information** By studying the business environment, we can know the changes of business. This information is very useful for our business. Every businessman should aware current environment of business. With this, he can think the future of his business in such environment. **2. Basis of Decisions** One of main objective of the study of business environment that it can provide all the information which is needed for taking good decisions. Suppose, you completed your internal business environment study. With this study, you can take decision relating to purchase, sale, salary and price because you know your competitor, you know your suppliers and you know your customers. **3. Helpful in making of Policies** For making good business policies, we need to know and scan business through business environment. **4. Technological Planning** Today, technology is changing rapidly. few years ago, we had to search software for downloading business software but today I can use all business software online free of cost. This has become possible due to changes of web technology. So, we must study technological environment. With this, you can make better technological planning of your business. **5. Survive in the Business** Sometime industry may face recession. Production may be unlimited but sales will be limited. Only that business will survive who estimate all these situations in advance through business environment study. **[IMPORTANCE AND USES OF STUDY OF BUSINESS ENVIRONMENT]** 1. **It Helps in Identifying Opportunities and Making First Mover Advantage:** The environment provides numerous opportunities, and it is necessary to identify the opportunities to improve the performance of a business. Early identification gives an opportunity to an enterprise be the first to identify opportunity instead of losing them to competitors. Example: 'Airtel' identified the need for fast internet and took first-mover advantage by providing 5G speed to its users followed by Vodafone and Idea. Amazon and eBay created the first online bookstore, which was immensely successful. 2. **It Helps the Firm Identify Threats and Early Warning Signals:** The business environment helps in understanding the threats which are likely to happen in the future. Environmental awareness can help managers identify various threats on time and serve as an early warning signal. Example: Patanjali products have become a warning signal to the rest of the fast-moving consumer goods (FMCG). The sector to develop similar products. Similarly, if an Indian firm finds that a foreign multinational is entering the Indian market with new substitutes; it needs to prepare accordingly. Chinese mobile phones have become a threat for Indian mobile phone manufacturers. 3. **It Helps in Tapping Useful Resources:** Business and industry avail the resources (inputs) from the environment and convert them into usable products (outputs) and provide to society. The environment provides various inputs (resources) the like finance, machines, raw materials, power and water, labour, etc. The business enterprise provides outputs such as goods and services to the customers, payment of taxes to the government, to investors and so on. Example: With the demand for the latest technology, manufacturers will tap the resources from the environment to manufacture OLED TVs and QLED TVs rather than collecting resources for LED TVs. LG is the forerunner of OLED technology. It supplies OLED panels to other manufactures like Sony, Panasonic, Philips etc... 4. **It Helps in Coping with Rapid Changes:** The business environment is changing very rapidly, and the industry is getting affected by changing market conditions. Turbulent market environment, less brand loyalty, divisions of markets, changes in fashions, more demanding customers, and global competition are some examples of changing the business environment. Example: Jack Ma started Alibaba as he could see the potential of interest in E-Commerce. But now Amazon has become a largest ecommerce retailer. 5. **It Helps in Assisting in Planning and Policy Formulation:** The business environment brings both threats and opportunities to a business. Awareness of business environment helps in deciding future planning or decision making. Example: Multiple entries of Chinese phones like VIVO, Xiaomi, OPPO, etc. have posed a threat to local players like Micromax, Lava etc. to think afresh how to deal with the situation. 6. **It Helps in Improving Performance:** Environmental studies reveal that the success of any enterprise is closely bound with the changes in the environment. The enterprises which monitor and adopt suitable business practices not only improve their performance but become leaders in the industry also. Example: Apple has been successful in maintaining its market share due to its proper understanding of the environment and making suitable innovations in its products. **[ENVIRONMENTAL ANALYSIS]** An organization relies on strengths to capture opportunities and recognize weaknesses to avoid becoming a victim of environmental threats. A company performs an environmental analysis to gain an understanding of these strengths, weaknesses, opportunities, and threats. The environmental analysis influences corporate planning and policy decisions. **[MEANING]:** Environmental business analysis is a term given to the systematic process by which environmental factors in a business are identified, their impact is assessed and a strategy is developed to mitigate and or take advantage of them. **[PROCESS OF ENVIRONMENTAL BUSINESS ANALYSIS]** **1. Scanning:** a. Identify early signals of possible environmental change b. Detect environmental change already under way. c. Scanning ill structures and ambiguous environmental analysis activity. The potentially relevant data for scanning is unlimited, vague, and imprecise. It is challenge to make sense out of vague data. **2. Monitoring:** Involves tracking the environmental trends, sequence of events, or streams of activities. The three outcomes of monitoring are a. A specific description of environmental trends and patterns to be forecasted b. Identification of trends for further monitoring c. Identification of trends for further scanning These outputs become inputs for forecasting **3. Forecasting:** Scanning and monitoring provide a picture of what has already taken place and what is happening. Strategic decision-making needs future orientation. Forecasting is concerned with possible projections of directions, scope, and intensity of environmental change. It tries to layout anticipated change. **4. Assessment:** The outputs of the previous stages are assessed. Assessment involves identifying and evaluating how and why current and projected environment changes affect or will affect strategic management of the organization. **[LIMITATIONS OF ENVIRONMENTAL ANALYSIS]** **1. Lack of Forewarning of Unforeseen Events** Environmental analysis does not predict the future. It does not eliminate uncertainty for the organization also. Business enterprises sometimes face events, which are unexpected during analysis. Environmental analysis, however, should aim at minimizing the frequency and extent of surprises that may attack a business organization. **2. No Assurance as to Organization Effectiveness** Environmental analysis does not ensure organizational effectiveness. It acts only as inputs in strategy development and testing. Sometimes, managers place uncritical faith in the data without thinking about the data's verifiability or accuracy. If this is the case, it may lead to misleading outcome. **3. Not fully Reliable** Normally, people place too much reliance on the information collected through environmental scanning. But in practice, it is not so. When there is overloading of information, one is likely to get confused. **4. Absence of Strategic Approach** Success of any organization lies in adventure and strategic risk-taking. Environmental analysis often makes an individual too cautious in his approach and he is likely to be left behind the events. So this analysis should be strategically done. **[SWOT ANALYSIS]** SWOT analysis was first used to analyze businesses. Now, it\'s often used by governments, nonprofits, and individuals, including investors and entrepreneurs. There is seemingly limitless applications to the SWOT analysis. **COMPONENTS OF SWOT ANALYSIS** Every SWOT analysis will include the following four categories. Though the elements and discoveries within these categories will vary from company to company, a SWOT analysis is not complete without each of these elements: 1. **STRENGTHS** Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors. 2. **WEAKNESSES** Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital. 3. **OPPORTUNITIES** Opportunities refer to favorable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share. 4. **THREATS** Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labor supply. and so on. **[THE PESTLE ANALYSIS ]** The PESTLE analysis, sometimes abbreviated to PEST, is a common method for conducting an environmental analysis. Organizations use this to look at factors that may impact the profitability of their business. PESTLE stands for the following factors: **POLITICAL** Political factors examine the country\'s current political situation. This often involves evaluating to see if the government is stable or likely to change soon. Political factors to consider include: - Tax laws - Government policies - Trade restrictions - Corruption **ECONOMICAL** When conducting an environmental analysis, businesses often look at economic factors, or the current state of the economy. This allows them to design strategies based on the direction the economy appears to be going. For instance, if the unemployment rates are low, a business may assume the economy is in a good condition and consider opening another branch. Other economic factors to consider in your review are: - Interest rate - Inflation rate - Foreign exchange rate - Credit accessibility **SOCIAL** Social factors are the attitudes a country has that may impact business. For instance, in some cultures, individuals eat a diet based on their religion. This may affect the sales of certain foods in that area. Some examples of social factors include: - Family structure - Gender roles - Distribution of wealth - Education levels **TECHNOLOGICAL** Technological factors include advancements and innovations that may change how a company conducts business. For some businesses, this may positively impact their processes by utilizing automation to speed up creation. However, technology may also replace some job positions. Technological factors to consider in your analysis include: - New discoveries or product launches - Rate of technological advances - Consumer access to technology - Technology incentives **LEGAL** Legal factors look at legislative changes that may impact the environment of a business. When regulatory bodies set new regulations for a particular industry, such as healthcare, it may impact that industry. Some legal factors to be aware of include: - Health and safety regulations - Patent infringements - Product regulations - Employment laws **ENVIRONMENTAL** Environmental factors look at how the geographical location may affect a business. Certain conditions in each area may impact trade. Environmental factors to consider in your review are: - Weather conditions - Waste disposal laws - Energy consumption regulations - Environmental policies **[ENVIRONMENTAL FACTORS]** **[MICRO ENVIRONMENT FACTORS]** **Suppliers:** Suppliers can control the success of the business when they hold power. The supplier holds the power when they are the only or the largest supplier of their goods; the buyer is not vital to the supplier's business; the supplier's product is a core part of the buyer's finished product and/or business. **Resellers:** If the product the organization produces is taken to market by 3rd party resellers or market intermediaries such as retailers, wholesalers, etc. then the marketing success is impacted by those 3rd party resellers. For example, if a retail seller is a reputable name, then this reputation can be leveraged in the marketing of the product. **Customers:** Who the customers are (B2B or B2C, local or international, etc.) and their reasons for buying the product will play a large role in how you approach the marketing of your products and services to them. **The competition:** Those who sell the same or similar products and services as your organization is your market competition, and the way they sell needs to be considered. How do their prices and product differentiation impact you? How can you leverage this to reap better results and get ahead of them? Businesses can study their competitors, learn about the latest market trends, and stay ahead of the competition. By remaining relevant in the industry and providing the best services to clients, they can continue growing and not worry about losing revenue. Information collected about the market/competition can deliver insights into their processes. It teaches how to improve products and processes and implement the right strategies for marketing goods. **The general public:** Your organization has a duty to satisfy the public. Any actions of your company must be considered from the angle of the general public and how they are affected. The public has the power to help you reach your goals; just as they can also prevent you from achieving them. **[MACRO ENVIRONMENT FACTORS]** **Demographic forces:** Companies need to evaluate the demographics of their audience and ensure they are marketing the right products to them. If customers do not get benefits and pain points aren\'t addressed, they cannot make the most of offerings. Some demographics that impact business workflows are age, gender, location, nationality, marital status, income level, level of education, and race**. An example of demographics in action is when a mobile company targets only a section of the population with a plan, such as those in the college level age with exclusive offers.** Another example, when they target businesspeople and professionals with another offer. Nowadays, people of all ages use telecommunications devices, and the technology landscape has changed. **Economic factors:** The economic environment can impact both the organization's production and the consumer's decision-making process. **Natural/physical forces:** The Earth's renewal of its natural resources such as forests, agricultural products, marine products, etc must be considered. There are also natural non-renewable resources such as oil, coal, minerals, etc that may also impact the organization's production. **Technological factors:** As a company develops its business model, it may experience a sharp decline in sales if it does not keep up with the latest technology trends. For example, if businesses are shifting to eCommerce models and brands are stuck taking offline orders, they will lose revenue. Another instance is a company that manufactures GPS navigation for automobiles. The brand may suffer in sales if they stick to only catering to car companies and don\'t branch out to mobile devices and other sectors. Technology is not limited to sales and can influence communications, billing, inventory management, and business operations too. Companies that are leveraging automation to eliminate manual tasks will operate more efficiently than those working in traditional ways. **Political and legal forces:** Political and legal factors influence how a business operates in that region and whether it can continue functioning. Companies must follow modern legislation policies, and those that do not will have to modify their processes in order to stay compliant. Some policies that affect companies range from taxation, import restrictions, intellectual property laws, employment laws, and tariffs. **Social and cultural forces:** Where customers live influences their decision to spend money on a company that sells specific goods/services. If a business wants to succeed with the crowd, it must understand where the people are coming from. Social factors include current events, societies, and local communities. Businesses consider social movements and factors to make products more appealing to customers. They have to cater to customers\' specific preferences, values, and ideals to stay relevant. For example, a company that sells products for women must be able to connect with other women\'s emotional or financial values. It should focus on customer satisfaction and make lives easier for female buyers. **Global Factors** Global factors influence how a business deals with domestic and international issues. Social and cultural norms are tied to global factors, and business leaders need to develop the right training programs for employees. Business firms aim to develop a good array of products/services. Without being aware of global challenges, this is not possible. The more customer economic status and global issues are considered, the better the quality of products becomes. Additionally, it makes the business approachable to larger audiences and expands upon targeted demographics. **[CONCULSION]** Micro and macro environments have a significant impact on the success of marketing activities, and therefore such environmental factors must be considered in-depth during the process of creating a strategic marketing plan. Considering these factors will improve the success of your organization's marketing campaign and the reputation of the brand in the long term.