Unit 2: Business Environment

• Concept of business environment;

• Components of business environment:
internal and external
• SWOT analysis: concept and components:
• Social responsibility: concept and approaches
• Areas of corporate social responsibility
 What is business environment??
• 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.
• Sum of these factors influences the companies or business
organizations environment and situation.
 Types of Business Environment
Internal Environment External Environment
• Owners 1. Specific or task
• Board of Directors environment
• Organizational Resources – Customers
– Suppliers
• Organizational Structure
– Competitors
• Organizational Culture – Government
– Pressure groups
– Financial Institutions
– Strategic Allies
2. General Environment
P.E.S.T
 1. Internal Environment
• Owners
• Board of Directors
• Organizational Resources
• Organizational Structure
• Organizational Culture
 2. External Environment
A. Specific or task environment
– Customers
– Suppliers
– Competitors
– Government
– Pressure groups
– Financial Institutions
– Strategic Allies
 B. General Environment
• Political Environment
• Economic Environment
• Socio-cultural Environment
• Technological Environment
 Political Environment

• Constitution
• Political philosophy
• Political parties
• Political institutions
• Legal institutions
 Economic Environment
• Being an economic entity, economic environment is the most
important environmental components for a business.
• Economic conditions are critical to the success of the
organizations.
• It is defined as the nature and direction of the economic
system of a country and their impact on the individual
organization.
• The economic factors such as: national income,
saving ,investment, monetary policies, economic growth,
interest rate, consumption pattern etc, have great impact on
functioning of an organization.
• Therefore, managers should devote much of their time and
resources to forecast the economy and possible changes.
 Economic Environment

1. Economic System: ( Open Market Economy, Centrally Planned

Economy, Mixed Economy)
2. Economic Policies: ( Fiscal Policy, Monetary Policy, Industrial Policy)
3. Economic Conditions: ( Per capita income, GDP, Inflation,
economic growth rate)
4. Capital Market: ( Central bank and banks, finance companies,
insurance companies, stock market)
5. Globalization:
1. Integration of world into single market
2. Economic integration has been promoted by regional and
global organizations like SAARC, BIMISTEC, ASEAN, G8, EU,
OPEC.
 Socio-cultural Environment
• The socio-cultural environment affects the behavior
of people and their organizations.
• It includes values, belief, demographic conditions,
lifestyle, family system, opinions and assumptions
widely held by the citizen of the particular country.
• These elements of society impact the business
organizations.
• Social-cultural environment includes the total forces
within which an organization operates.
 Socio-cultural Environment

• Demography: It focuses on the composition of

population of the country.
• Lifestyle: Pattern and living standard of the people
• Social Values: Social values are the belief and norms of
the society.
• Social Institutions: basic components of society such as
families, reference groups, social class.
• Religion: Religion is the belied and trust people have
accepted since long time.
• Language: It is a medium of communication. It also
reflects the culture.
 Technological Environment

• Technology is the practical application of scientific knowledge.

• Technological environment involves the institutions and
activities involved in creating new knowledge and translating
it into new products processes, and materials.
• Radical development has occurred over the past several years
in communication, information and automation including
robotics.
• This development brings both opportunity and threats for the
organizations.
• Thus, organizations should utilize their strength to gain from
opportunity and neutralize the threats.
 Technological Environment
1. Level and nature of technology: ( manual,
mechanized, automated, computerized, robotized
technology)
2. Pace of technological change: It is the stage and
speed of the technology change.
3. Technology Transfer: Technology imported from
other country, transfer of technology from one
country to another.
4. Research and development budget: spending made
by the government and business organizations for
technological adaptation, up-gradation and
development.
SWOT analysis: concept and components
 SWOT Analysis
• SWOT (strengths, weaknesses, opportunities, and threats)
analysis is a framework used to evaluate a company's
competitive position and to develop strategic planning.
• SWOT analysis assesses internal and external factors, as well as
current and future potential.
• Strengths and weaknesses are internal to your company—things
that you have some control over and can change. Examples
include who is on your team, your patents and intellectual
property, and your location.
• Opportunities and threats are external—things that are going on
outside your company, in the larger market. You can take
advantage of opportunities and protect against threats, but you
can’t change them. Examples include competitors, prices of raw
materials, and customer shopping trends.
 SWOT Analysis
• Strength – an inherent capacity of an organization
which helps it gain a strategic advantage over its
competitors.
• Weakness – an inherent constraint or limitation
which creates a strategic disadvantage for a
business.
• Opportunity – a favorable condition in the
organization’s environment enabling it to strengthen
its position.
• Threat – an unfavorable condition in the
organization’s environment causing damage to the
organization.
Social responsibility
1. concept and approaches
2. Areas of corporate social responsibility
 What is CSR?
• Society of business: Individuals, institutions, other entities
which come in contact of business, ( Shareholders, customers,
employees, government and other general community around
business)
• Responsibility: Obligation of business to meet legitimate
demand
• Corporate Social Responsibility is a management concept
whereby companies integrate social and environmental
concerns in their business operations and interactions with
their stakeholders.
• CSR is generally understood as being the way through which a
company achieves a balance of economic, environmental and
social imperatives
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CSR can be categorized into four categories;
1. Economic responsibilities: produce goods
and services at reasonable price. In this
context, companies try to find out a solution
which can facilitate their business growth and
generate profits by benefitting the
community and our society.
2. Legal responsibilities: business comply laws
and regulations

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3. Ethical responsibility is about looking after
the welfare of the employees by ensuring fair
labor practices for the employees and also the
employees of their suppliers. Ethical labor
practices for suppliers mean that the
companies will ensure the use of products
that have been certified as meeting fair trade
standards.
4. Voluntary responsibility: Additional
behaviors and activities that society finds
desirable
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Approaches to CSR

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 Obstructionist Approach
• Under this strategy businesses • This approach is immoral
assume profit as the most
since business exploit
important aspect of the
business and have responsibility their employees, pollute
towards their business. natural resource and
• They do not behave in a socially deceive customers.
responsible way.
• They usually want to hide their
illegal activities and unethical
activities with stakeholders and
wider society.
• This is regarded as the lowest
degree of social responsibility.
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 Defensive
• This approach assumes that the Example
businesses should comply with the
existing rules and regulations. • company may create more
• In order words, business following waste than necessary, but
this approach should assume it will remove all the waste
themselves socially responsible by
in a legal method rather
following the existing rules and
regulations. than dumping it illegally so
• They do not pursue social this way the company is
responsibility as a part of their over exploiting resources
business and give more emphasis on which is unethical but to
profit.
• These companies make a point of
cover it up they are using
following the law to ensure that legal disposable methods
others cannot take legal action thus showing that they are
against them but they do not more contributing to the society
than what is legally required 23
 Accommodating
• Under this approach businesses Example
respond social issues and • it may decrease its creation
problems voluntarily.
of waste, source products
• Beyond legal compliance,
that are not tested on
businesses follow this approach
pursue social responsibility
animals and pay its
selectively. employees a fair wage. The
• They try to act ethically in the company would keep its
interest of overall society. records open to the public.
• However, they do not consider Though these companies are
social responsibility as their goal. often socially responsible,
• They give equal importance to they may change their
profit and social responsibility. policies in response to
criticism.
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 Proactive
• Under this approach, businesses
behave as a responsible citizens. • Dixon Industries Inc. They
• They seek to contribute the
collectively recalled 62,000
society proactively.
•
faulty commercial riding
They anticipate and explore
public expectations and pursue mowers.
social responsibility as a major • These companies worked
goal. directly with their dealers,
• They regard active social distributors and customers
responsibility as the base for
sustainable development of their
during the recall campaign
business. to proactively fix or
• A proactive company attempts to replace the affected units
remain ahead when it comes to already on the market
the social responsibility.
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 Areas of CSR
1. Towards Customers: plays important role in survival
of business. They pay revenue = source of business
income !
Business should be accountable to customers by:
2. Charging reasonable price
3. Quality product, after sales service
4. Ethical Advertising
5. Treating customers fairly
6. Avoiding monopoly and restrictive trade practices
7. Ensure health and safety of customers
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 Towards Shareholders
• Shareholders are the investors.
• Business should be accountable to
shareholders;
1. Dividends payment
2. Disclosure of information
3. Respect their suggestions and advices
4. Report on social issue

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 Towards employees
• Employees as managers and workers
• Business should provide;
1. Decision making and policy making freedom
2. Ensure fair wage, bonus, and other economic benefits
3. Right to form union
4. Representation in decision making
5. Good working condition
6. Grievance handling, social security and welfare
schemes

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 Towards Government
1. Regular and correct payment of tax
2. Fair business practice and application of business laws
3. Helping in solving social problems like unemployment,
poverty, price, wage rise
4. Maintain social order by proper business practice
5. Environment protection
6. Helping weaker section of society
7. Helping in raising health standards, workplace safety
8. Be good corporate citizen via contribution in education
, development etc
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