Business Environment

Unit 1 – Theoretical Framework of Business Environment

B.Com III Sem

Dr.Lamaan Sami
Associate Professor

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Concept of Business Environment
Business Environment means a collection of all individuals,
entities and other factors, which may or may not be under the
control of the organisation, but can affect its performance,
profitability, growth and even survival.
Every business organisation operates in a distinctive
environment, as it cannot exist in isolation. Such an
environment influence business and also gets affected by its
activities.

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 According to Keith Davis, “Business environment is the aggregate of
all conditions, events and influence that surrounds and affect it”.
 According to Andrews, “The environment of a company as the
pattern of all external influences that affect its life and development
 Business environment encompasses all those factors that affect a
company’s operations and includes customers, competitors,
stakeholders, suppliers, industry trends, regulations other
government activities, social and economic factors and
technological developments. Thus, business environment refers to
the external environment and includes all factors outside the firm,
which lead to opportunities and threats of a firm.

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Significance of business environment
Some of the direct benefits of understanding the business
environment are given below:
1. Customer Focus: Environmental understanding makes the
management sensitive to the changing needs and expectations
of consumers. For example: Hindustan Lever and several other
FMCG companies launched small sachets of shampoo and other
products realising the wishes of customers. This move helped
the firms to increase sales.

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2. Strategy Formulation: Environmental monitoring provides
relevant information about the business environment. Such
information serves as the basis for strategy making. For
example: ITC realised that there is a vast scope for growth in the
travel and tourism industry in India and the government is keen
to promote this industry because of its employment potential.
With the help of this knowledge ITC planned new hotels both in
India and abroad.

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3. Public Image: A business firm can improve its image by
showing that it is sensitive to its environment and responsive to
the aspirations of public. Leading firms like Reliance Industries,
ICICI Bank and others have others have built good image by
being sensitive and responsive to environmental forces.
Environmental understanding enables business to be responsive
to their environment

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4. Continuous learning: Environmental analysis serves as broad
based and ongoing education for business executives. It keeps
them in touch with the changing scenario so that they are never
are caught unaware. With the help of environmental learning
managers can react in an appropriate manner and thereby
increase the success of their organisations.
5. Giving Direction for Growth: The interaction with the
environment leads opening up new frontiers of growth for the
business firms. It enables the business to identify the areas for
growth and expansion of their activities.

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Nature of Business Environment
1. Dynamic: The environment in which the business operates
changes continuously because there is a wide variety of factors
that exist in the environment, causing it to change its shape and
character.
2. Complex: There are many forces, events and conditions that
constitute business environment, arising from various sources.
So, it is a bit difficult to understand the relative influence of a
particular factor, on the operation of the organisation.
3. Uncertain: Uncertainty is an inherent characteristic of business
environment because no one can predict what is going to happen
in future.
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4. Multi-faceted: A single change in the business environment, can
be viewed differently by different observers because their
perceptions vary.
5. Far-reaching Impact: The survival, growth and profitability, of a
business enterprise, depends largely on the environment in which it
exists. A small change in the environment has a far-reaching impact
on the organisation in different ways.
6. Relative: The notion of business environment is relative since it
varies from one location to another.

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Elements of Business Environment – Internal and
External environment

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Components of Business Environment
The Business Environment is broadly classified, into two categories:
Internal Environment: The factors which exist within the organisation,
imparting strength or causing weakness to the organisation, comes
under internal environment. It includes:
1. Value System:
The value system of an organisation means the ethical beliefs that
guide the organisation in achieving its mission and objective. The value
system of a business organisation also determines its behavior towards
its employees, customers and society at large. The value system of the
promoters of a business firm has an important bearing on the choice of
business and the adop­tion of business policies and practices.

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2. Mission and Objectives:
The objective of all firms is assumed to be maximization of
long-run profits. But mission is different from this narrow
objective of profit maximization. Mission is defined as the
overall purpose or reason for its existence which guides and
influences its business decision and economic activities.
The-choice of a business domain, direction of its development,
choice of a business strategy and policies are all guided by the
overall mission of the company. For example, “to become a
world-class company and to achieve global dominance has
been the mission of ‘Reliance Industries of India’. Similarly “to
become a research based international pharma company” has
been stated as mission of Ranbaxy Laboratories of India.
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3.Organisation Structure:
Organisation structure means such things as composition of board of
directors, the number of independent directors, the extent of professional
management and share -holding pattern. The nature of organizational
structure has a significant influence over decision making process in an
organisation. An efficient working of a business organisation requires that
its organisation structure should be conducive to quick decision making.
Delays in decision making can cost a good deal to a business firm
4. Corporate Culture and Style of Functioning of Top Management:
Corporate culture and style of functioning of top managers is important
factor for determining the internal environment of a company. Corporate
culture is generally considered as either closed and threatening or open
and participatory.

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In a closed and threatening type of corporate culture the business
decisions are taken by top-level managers, while middle level and work-
level managers have no say in business decision making. There is lack of
trust and confidence in subordinate officials of the company and secrecy
pervades throughout in the organisation. As a result, among lower level
managers and workers there is no sense of belongingness to the company.
On the contrary, in an open and participatory culture, business decisions
are taken at lower levels of management, and top management has a high
degree of trust and confidence in the subordinates. Free communication
between the top level management and lower-level managers is the rule in
this open and participatory type of corporate culture. In this open and
participatory system the participa­tion of workers in managerial tasks is
encouraged.
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Closely related to corporate culture is the style of functioning of top
management. Some top managers believe in just giving orders and
want them to be strictly followed without holding consul­tations with
lower level managers. This style of functioning is not conducive to
the adaptability and flexibility in dealing with the changing external
environment of business.
5. Quality of Human Resources:
Quality of employees (i.e. human resources) of a firm is an important
factor of internal environment of a firm. The success of a business
organisation depends to a great extent on the skills, capabilities,
attitudes and commitment of its employees. Employees differ with
regard to these characteristics.
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6.Labour Unions:
Labor unions are other factor determining internal environment of a
firm. Unions collectively bargain with top managers regarding
wages, working conditions of different categories of employees.
Smooth working of a business organisation requires that there
should be good relations between management and labor union.
7.Physical Resources and Technological Capabilities:
Physical resources such as plant and equipment, and technological
capabilities of a firm determine its competitive strength which is an
important factor determining its efficiency and unit cost of
production. R and D capabilities of a company determine its ability
to introduce innovations which enhance productivity of workers.
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External Environment: External Environment consists of those
factors which provide opportunity or pose threats to the business. These
are uncontrollable factors and firms adapt to this environment. It is further
classified as:
Micro Environment: The immediate periphery of the business that has a
continuous and direct impact on it is called Micro Environment. It includes
suppliers, customers, competitors, market, intermediaries, etc. which are
specific to the business.
(i) Customers:
Customers constitute important segment of the micro environment.
Business exists to serve its customers. Unless there are customers, business
has no meaning. A company can have different types of customers like,
households, producers, retailers, Government and foreign buyers.
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(ii) Suppliers:
They supply inputs (money, raw material, fuel, power and other
factors of production) and help in smooth conduct of the business.
Firms should remain aware of the policies of suppliers as increase in
prices of inputs will affect their sales and profits.
(iii) Competitors:
Competitors form important part of the micro environment. Firms
compete to capture big share of the market. They constantly watch
competitors’ policies and adjust their policies to gain customer
confidence

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 (iv) Public:
“A public is any group that has an actual or potential interest in or impact
on an organization's ability to achieve its interest”. Public can promote or
demote company’s efforts to serve the market. The term ‘public’ consists
of financial public (banks, financial institutions etc.), media public
(newspapers, radio, television etc.), Government public, customer
organisations, internal public (workers and managers), local public
(neighborhood or community residents) and general public (buyers at
large). Companies observe the behavior of these groups to make functional
policies.
(v) Market intermediaries:
They are the links that help to promote, sell and distribute the products to
final consumers.
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Macro Environment: Macro Environment, is one such environment that
influences the functioning and performance of every business organisation,
in general. It comprises of demographic, socio-cultural, legal, political,
technological, and global environment. . This is largely uncontrollable and,
therefore, firms adjust their operations to these environmental factors.
The macro-environment consists of the following:
(1)Economic Environment
The economic environment is the sum total of the economic conditions and
the nature of the economy in which the business has to operate and
compete. This will include the nature of the economy, the direction in which
it is progressing, the availability of resources (labour, capital etc) and the
conditions of the market as well. All these factors in combination create the
economic environment for a firm.

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1] Economic System:

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The economic system under which the economy operates has a
huge impact on its economic environment. Let us take a look at the
three economic systems which usually prevail
 Capitalist Economy: There are no restrictions in a capitalist

economy. The market forces operate freely, demand and supply

will decide the prices in the market. There is private ownership of
factors of production and private companies.
 Socialist Economy: This type of economy is characterized by

government control and a central planning authority. So there is

no private ownership, all means of production are under state
control. There are no market forces and the price is also set by
the state.
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 Mixed Economy: Here the best features of both capitalism and
socialism combine to give us this system. Market forces are very
much in force to decide demand supply and prices. But there is
some government oversight to ensure that there are no
discriminatory practices.
2] Economic Conditions
The economic conditions of the country also have a huge impact on
the firms that exist within the economy. Furthermore, economic
conditions are the sum total of many factors that can greatly affect a
business. Such factors include GDP of the economy, per capita
income, availability of capital, utilization of resources, state of the
capital market, interest rates, unemployment levels etc.
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3] Economic Policies
In any economy, the government has some control and/or
oversight. Moreover, governments with the help of their planning
authorities frame and implement many types of economic policies.
 Industrial Policy: These are all rules, laws, notifications, policies,

circulars etc through which the government controls and

governs the industrial sector of the economy. This helps them
shape the industrial development of the country.
 Fiscal Policy: This is the government policy with regard to public

expenditure, taxation, and public debt. This also greatly affects

the businesses functioning in the economy.

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 Monetary Policy: This policy will decide the supply of money to the
market. Consequently, will decide the levels of savings and
investments. It will also control credit supply in the economy.
 Foreign Investment Policy: This deals with keeping the foreign

investments in-check for all sectors. So that, we can benefit from

the new technologies in all sectors.
 Import Export Policy: This is how the government controls the

export and imports of a country. Also, the import-export policies

will lay out the duties, taxes, subsidies etc. These days there are
not many barriers to import and export which positively affects
the economic environment.

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(2) Political-Legal environment:-
 This is a non-market factor but it can still greatly impact a
business. The political-legal environment is a combination of a
lot of factors such as the current political party in power, the
degree of politicization of trade and industry, the efficiency of
the current government, government policies, current legal
framework, public attitude towards the economy etc.
 All these factors will shape the political-legal environment in

which the firm has to operate and compete. There are three
main elements of a political-legal environment.

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1] Government
 You must have often heard that an election year is an extremely
important factor for the economy. This is why the type of
government governing at the center and the state has a huge
impact on the businesses. The government decides all the fiscal
policies, monetary policies, and taxation modules as well.
 So the type of government in power has a huge impact on the

economy and the firms that operate and compete in the economy.
Like for example, the current government has the Make in India
initiative which is good for the manufacturing sector.

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2] Legal
A sound legal system is essential to the success of any business. So a
country must have a sound and functioning legal system with laws that
equally protect both consumers and manufacturers. There are various
other matters like company law, royalties’ law, patent law, intellectual
property rights. International laws etc that also have a great influence on
the business of firms. For example, the new GST laws are going to have a
significant effect on the businesses.
3] Political
Political stability in a country is essential for a stable economy and stock
market. Also, various political groups also hold a lot of influence on
businesses and unions. So the political environment of a country is a major
factor in the success of a firm.
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(3)Social Environment:-
 The social environment and the cultural environment in which a
firm operates can be a major factor in the success or failure of the
firm. The social environment comprises of many dynamic factors
such as social traditions, cultural influences, values and beliefs
prevailing in the society, social stratification etc.
 Companies, especially international companies always study the

cultural and social environment of a country before entering the

market. It is important that your goods and services are in tandem
with the social environment of the country. Otherwise, the
company could face a backlash and run into losses.

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Some important factors that affect the cultural and social
environment in a country are as follows,
 Social concerns that plague a society, such as pollution

levels, corruption amongst government officials, excessive

consumerism, ill effects of mass media consumption etc.
 The social values and social attitudes of the businesses

and the citizens. This includes the rituals and practices of

the people and can also include religious beliefs.
Changing lifestyle patterns also effects the expectations
consumers have for the businesses.
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 Family values, family structure and the role that family
occupies in society has a great impact on the social
environment
 The position and state of women and children in

society. Even the role that women play in society will be

a factor.
 Education and literacy levels of the population are

another factor. This also includes consumer awareness

and consumer protection

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(4) Technological Environment:-
 Technology refers to application of scientific and organized knowledge to
organizational tasks. It includes inventions and innovations regarding
techniques of production. Technology is changing at a fast pace and
technical environment is dramatically affecting the business environment
either because of easy import policies or because of technology
upgradation as a result of research and development within the country.
 The technological advances have introduced products like robots,
telecommunication facilities, medicines, equipment’s etc. Business firms
adapt to the fast changing technical environment. Though technological
changes can produce harmful effects also for the enterprises, firms try to
reduce these effects and use technological changes in the best interest of
firms and society.

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(5) Demographic environment:-
 It consists of population in its varied forms, such as gender, age,
income, growth rate, language, religion, etc. Increasing population
increases the demand for business products and also provides
labour at low rate. A largely populated country can adopt labour-
intensive technology to keep the labour force employed.
(6) Natural environment:-
The natural environment consists of the renewable and non­renewable
resources used in the production processes. The renewable resources
are air, water and solar energy which can be replenished and non-
renewable resources are oil, coal, wood etc. which cannot be
replenished.
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(7) International environment:
 It represents the global environment characterized by the “borderless
world”. The Indian economy entered the global world in 1991 through its
liberalization policies. There have been significant economic and political
changes and increasing role for the private sector to play since then.
 The global business environment is significantly influenced by the principles

and agreements of World Trade Organisation (WTO). WTO monitors and

regulates the business transacted in the international environment.
It has created significant impact in the following areas:
1. Liberalization of imports.
2. Opportunities for Indian firms to enter into foreign markets through
exports and investments.

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3. Seek foreign equity participation and foreign technology in Indian
firms to expand business and improve competitiveness.
4. Facilitate global sourcing by Indian firms.
5. Benefit from global sourcing by foreign firms.
6. Improve efficiency and dynamism of the firms to survive in the
global competition. Inefficient firms have to leave the market.

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Environmental Scanning
It consists of a process of gathering, analyzing, and dispensing
information for tactical or strategic purposes about the
environments in which an organization is operating.
Some organizations regularly carry out the processes of
environmental scanning and monitoring to provide them with
early warning about important future changes in an effort to
“keep ahead of the pack”.
 Environment scanning and monitoring helps the signals of

potential changes in the environment. It also detects the

changes that are already under way.

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 It normally reveals ambiguous, incomplete, or unconnected
data and information. It involves a detailed and micro study of
the environment.
 Hence, it is also called the X-ray of the environment. The

environment uncertainty, complexity and dynamism are

studies to assess the trend of environment. It is the base of
environment analysis. It is normally done when there is high
level of uncertainty in the environment. It is a continuous
process.

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 It also helps to evaluate the long term strategic plan that will
be aligned with future business conditions.
 The scanning system should be aligned with the

organizational context. Hence, a scanning system designed

for a volatile environment may be inappropriate for a stable
environment. Many organizations even use special software
and internet for environment scanning.

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Techniques of Environmental Scanning
1) SWOT Analysis:-
This method was created in the 1960s by Albert Humphrey of
the Stanford Research Institute, during a study conducted to
identify why corporate planning consistently failed.
Since its creation, SWOT has become one of the most useful
tools for business owners to start and grow their companies.

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 SWOT
Analysis

Internal External
Analysis Analysis

Opportuniti
Strength Weakness Threats
es

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Elements of a SWOT analysis
As its name states, a SWOT analysis examines four elements:
 Strengths: Internal attributes and resources that support a

successful outcome.
 Weaknesses: Internal attributes and resources that work

against a successful outcome.

 Opportunities: External factors that the entity can capitalize

on or use to its advantage.

 Threats: External factors that could jeopardize the entity's

success.

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A SWOT analysis is a compilation of your company's strengths,
weaknesses, opportunities and threats.
The primary objective of a SWOT analysis is to help organizations
develop a full awareness of all the factors involved in making a
business decision.
A SWOT (strengths, weaknesses, opportunities and threats)
analysis is a planning process that helps your company overcome
challenges and determine what new leads to pursue.
The primary objective of a SWOT analysis is to help organizations
develop a full awareness of all the factors involved in making a
business decision.
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A SWOT matrix is often used to organize items identified under
each of these four elements. A SWOT matrix is usually a square
divided into four quadrants, with each quadrant representing
one of the specific elements. Decision-makers identify and list
specific strengths in the first quadrant, weaknesses in the next,
then opportunities and, lastly, threats.
Entities undertaking a SWOT analysis can opt to use any one of
the various SWOT analysis templates in existence; these
templates are generally variations of the standard four-quadrant
SWOT matrix.

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Using a SWOT analysis
A SWOT analysis should be used to help an entity, whether it is an
organization or an individual, to gain insight into its current and
future position in the marketplace or against a stated goal.
The idea is that because entities can see competitive advantages and
positive prospects, as well as existing and potential problems, they
can develop plans to capitalize on positives, address deficits or do
both.
In other words, once the SWOT factors are identified, decision-makers
should be better able to ascertain if an initiative, project or product is
worth pursuing and what is required to make it successful. As such,
the analysis aims to help an organization match its resources to the
competitive environment in which it operates.

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SWOT analysis pros and cons
SWOT analysis can help the decision-making process by
creating a visual representation of the various factors that are
most likely to impact whether the business, project, initiative or
individual can successfully achieve an objective.
Although that snapshot is important for understanding the
multiple dynamics that impact success, a SWOT analysis does
have its limits. The analysis may not include all relevant factors
for all four elements, thereby giving a skewed perspective.
Moreover, because it only captures factors at a particular point
in time and doesn't allow for how those factors could change
over time, the insight it offers could have a limited shelf life.

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2. PESTLE Analysis
A PESTLE analysis or PESTEL analysis (formerly known as PEST
analysis) is a framework or tool used to analyze and monitor the
macro-environmental factors that may have a profound impact
on an organization's performance.
This tool is especially useful when starting a new business or
entering a foreign market. It is often used in collaboration with
other analytical business tools such as the SWOT
analysis and Porter’s Five Forces to give a clear understanding of
a situation and related internal and external factors.

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PESTEL stands for:
 P – Political
 E – Economic
 S – Social
 T – Technological
 L – Legal
 E – Environmental

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 Political Factors:
These factors are all about how and to what degree a government
intervenes in the economy or a certain industry. Basically all the
influences that a government has on your business could be classified
here.
This can include government policy, political stability or instability,
corruption, foreign trade policy, tax policy, labour law, environmental
law and trade restrictions.
Furthermore, the government may have a profound impact on a
nation’s education system, infrastructure and health regulations. These
are all factors that need to be taken into account when assessing the
attractiveness of a potential market.
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 Economic Factors:
Economic factors are determinants of a certain economy’s
performance. Factors include economic growth, exchange rates,
inflation rates, interest rates, disposable income of consumers
and unemployment rates.
These factors may have a direct or indirect long term impact on
a company, since it affects the purchasing power of consumers
and could possibly change demand/supply models in the
economy. Consequently it also affects the way companies price
their products and services.

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 Social Factors:
This dimension of the general environment represents the
demographic characteristics, norms, customs and values of the
population within which the organization operates.
This includes population trends such as the population growth rate,
age distribution, income distribution, career attitudes, safety
emphasis, health consciousness, lifestyle attitudes and cultural
barriers.
These factors are especially important for marketers when targeting
certain customers. In addition, it also says something about the
local workforce and its willingness to work under certain conditions.

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 Technological Factors:
These factors pertain to innovations in technology that may
affect the operations of the industry and the market favorably or
unfavorably. This refers to technology incentives, the level of
innovation, automation, research and development (R&D)
activity, technological change and the amount of technological
awareness that a market possesses.
These factors may influence decisions to enter or not enter
certain industries, to launch or not launch certain products or to
outsource production activities abroad.

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 Legal Factors:
Although these factors may have some overlap with the political factors,
they include more specific laws such as discrimination laws, antitrust
laws, employment laws, consumer protection laws, copyright and patent
laws, and health and safety laws.
It is clear that companies need to know what is and what is not legal in
order to trade successfully and ethically. If an organisation trades globally
this becomes especially tricky since each country has its own set of rules
and regulations.
In addition, you want to be aware of any potential changes in legislation
and the impact it may have on your business in the future. Recommended
is to have a legal advisor or attorney to help you with these kind of things.

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 Environmental Factors:
Environmental factors have come to the forefront only relatively
recently. They have become important due to the increasing
scarcity of raw materials, pollution targets and carbon footprint
targets set by governments.
These factors include ecological and environmental aspects such
as weather, climate, environmental offsets and climate
change which may especially affect industries such as tourism,
farming, agriculture and insurance.

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PESTEL Analysis In Sum

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3. Porter's Five Forces Analysis
The primary model to assess the structure of industries was
developed by famous management theorist, Michael E. Porter in
his 1980 book Competitive Strategy: Techniques for Analyzing
Industries and Competitors.
Porter's model demonstrations that rivalry among firms in
industry depends upon five forces: the potential for new
competitors to enter the market; the bargaining power of buyers
and suppliers; the availability of substitute goods; and the
competitors and nature of competition.

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Main purpose of Five Forces is to determine the attractiveness of
an industry. However, the analysis also provides basis for
articulating strategy and understanding the competitive scene in
which a company operates.
The framework for the Five Forces Analysis consists of these
competitive forces:
1. Industry rivalry (degree of competition among existing firms):
Tough competition leads to reduced profit potential for
companies in the same industry. In competitive industry, firms
have to compete fiercely for a market share, which results in low
profits.
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Rivalry among competitors is tough when:
1. There are many competitors;
2. Exit barriers are high;
3. Industry of growth is slow or negative;
4. Products are not differentiated and can be easily substituted;
5. Competitors are of equal size;
6. Low customer loyalty.
2. Threat of substitutes (products or services): Availability of
substitute products will limit company’s ability to increase
prices. This force in Porter’s model is especially threatening
when buyers can easily find substitute products with attractive
prices or better quality and when buyers can switch from one
product or service to another with low price.
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3. Bargaining power of buyers: Powerful consumers have a
substantial impact on prices. Consumers have power to demand high
quality or low priced products.
If the price of the product is low, it directly impact in the revenue of
producers. While higher quality products usually raise production
costs. In both situations, there is less profit for producers.
Buyers exert strong bargaining power when:
 Buying in large quantities or control many access points to the

final customer;
 Only few buyers exist
 Switching costs to other supplier are low

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 They threaten to backward integrate
 There are many substitutes
 Buyers are price sensitive

4. Bargaining power of suppliers: powerful suppliers can

demand premium prices and limit profit of company. Porter
stated that strong bargaining power permits suppliers to sell
higher priced or low quality raw materials to their consumers.
This directly affects profit of the buying firms because it has to
invest more for materials.

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 5. Barriers to entry (threat of new entrants): It acts as a
deterrent against new competitors. This force decides how
easy (or not) it is to enter a particular industry. If an industry
is lucrative and there are few barriers to enter, rivalry soon
deepens. When more organizations compete for the same
market share, there is less profit. It is crucial for existing
organizations to generate high barriers to enter to prevent
new entrants.

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4. Industry Analysis
An industry analysis is significant business function which is
performed by business proprietors and other management
experts to evaluate the present business environment.
This is considered as effective market assessment tool designed
to provide a business with an idea of the intricacy of a particular
industry. Industry analysis reviews the economic, political and
market factors that influence the way the industry develops.
Major factors can include the power manipulated by suppliers
and buyers, the condition of competitors, and the possibility of
new market entrants.

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Industry analysis assists businesses to comprehend many
economic factors of the marketplace and how these factors may
be tactfully used to gain a competitive advantage.
Although business possessors may conduct an industry
analysis according to their particular needs, a few basic
standards exist to perform this important business function.
Small business owners often conduct industry analysis before
starting their business.

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This analysis is included in the entrepreneurs’ business plan
that summaries specific components of the economic
marketplace.
Elements may include the number of competitors, availability of
substitute goods, target markets and demographic groups or
various other pieces of essential business information.
This information is usually used to secure external financing
from banks or lenders for starting a new business venture.

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According to management theorists, an industry analysis
consists of three major elements:
1. The underlying forces at work in the industry
2. The overall attractiveness of the industry
3. The critical factors that determine a company's success within
the industry.

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5) Competitor Analysis
Organizations must operate within a competitive industry
environment. They do not exist in vacuum. Analyzing
organization’s competitors helps an organization to discover its
weaknesses, to identify opportunities for and threats to the
organization from the industrial environment.
While formulating an organization’s strategy, managers must
consider the strategies of organization’s competitors.
Competitor analysis is a driver of an organization’s strategy and
effects on how firms act or react in their sectors. The
organization does a competitor analysis to measure / assess its
standing amongst the competitors.
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Competitor analysis begins with identifying present as well as
potential competitors. It portrays an essential appendage to
conduct an industry analysis. An industry analysis gives
information regarding probable sources of competition
(including all the possible strategic actions and reactions and
effects on profitability for all the organizations competing in the
industry).
However, a well-thought competitor analysis permits an
organization to concentrate on those organizations with which it
will be in direct competition, and it is especially important when
an organization faces a few potential competitors.
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The main objectives of doing competitor analysis can be
summarized as follows:
 To study the market;
 To predict and forecast organization’s demand and supply;
 To formulate strategy;
 To increase the market share;
 To study the market trend and pattern;
 To develop strategy for organizational growth;

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 When the organization is planning for the diversification and
expansion plan;
 To study forthcoming trends in the industry;

 Understanding the current strategy strengths and weaknesses of a

competitor can suggest opportunities and threats that will merit a

response;
 Insight into future competitor strategies may help in predicting

upcoming threats and opportunities.

Competitors should be analyzed along various dimensions such as their
size, growth and profitability, reputation, objectives, culture, cost
structure, strengths and weaknesses, business strategies, exit barriers,
etc.
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The business environment is constantly evolving, and businesses need to be agile
in order to adapt to the latest trends and developments. Here are some of the
most recent trends in the business environment, along with their opportunities
and challenges:
The rise of artificial intelligence (AI). AI is rapidly transforming businesses across
all industries. AI-powered technologies can automate tasks, improve efficiency,
and make better decisions. This can lead to significant cost savings and
productivity gains for businesses. However, businesses also need to be aware of
the potential risks associated with AI, such as job displacement and bias.
The growth of e-commerce. E-commerce is growing rapidly, and it is now the
preferred way to shop for many consumers. This presents a huge opportunity for
businesses that can successfully sell their products or services online. However,
businesses also need to be aware of the challenges of e-commerce, such as fraud
and customer service.

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The increasing importance of data. Data is becoming increasingly valuable in the
business world. Businesses that can collect, analyze, and use data effectively can
gain a competitive advantage. However, businesses also need to be aware of the
challenges of data privacy and security.
The rise of the gig economy. The gig economy is growing rapidly, and it is now a
viable option for many workers. This presents an opportunity for businesses that
can tap into the gig workforce. However, businesses also need to be aware of the
challenges of managing a gig workforce, such as compliance and liability.
The increasing focus on sustainability. Consumers are increasingly demanding
sustainable products and services. This presents an opportunity for businesses
that can meet this demand. However, businesses also need to be aware of the
challenges of sustainability, such as cost and compliance.
These are just a few of the recent developments in the business environment.
Businesses that can successfully adapt to these trends will be well-positioned for
success in the years to come.

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Here are some additional opportunities and challenges that businesses may face in
the near future:
The impact of climate change. Climate change is a major challenge that will have a
significant impact on businesses in the years to come. Businesses need to start
planning for the impact of climate change, such as rising sea levels, extreme
weather events, and changes in consumer demand.
The growth of emerging markets. Emerging markets are growing rapidly, and they
present a huge opportunity for businesses. However, businesses also need to be
aware of the challenges of operating in emerging markets, such as corruption,
political instability, and weak infrastructure.
The increasing importance of cybersecurity. Cybersecurity is a major concern for
businesses of all sizes. Cyberattacks can cause significant financial damage and
reputational harm. Businesses need to invest in cybersecurity measures to protect
their data and systems.

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The changing demographics of the workforce. The workforce is becoming
increasingly diverse, and businesses need to be prepared to adapt to this change.
Businesses need to create a culture of inclusion and diversity in order to attract
and retain top talent.
The business environment is constantly changing, and businesses need to be
prepared to adapt to these changes in order to succeed. By understanding the
latest trends and developments, businesses can identify opportunities and
challenges and take steps to mitigate risks.

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