Business Environment

Business Environment:Introduction, Features and its Types with Global Integration

The post contains following information about Business Environment :

1. Features of Business Environment
2. Importance of Business Environment
3. Vision and Mission Statement
4. Types of Business Environment
5. Global Integration and Business Environment
6. Comparative Analysis of Business Environment : India and other Countries

Old concept was to ‘sell what is being produced’ while the modern concept is to ‘ produce what is being desired’. 

According to Barnard – environment consists of atoms and molecules, agglomeration of things in motion, alive, emotions laws, etc. The number is infinite, they are always present as well as changing.’

Modern business is dynamic. It keeps on changing, the business environment either possesses a threat or gives an opportunity for market exploitation.

Features of Business Environment :

1. Aggregative in nature
2. Specific(investors, customers) and general (social, political, technological) forces which affect the enterprise directly and indirectly respectively.
3. Dynamic in nature
4. Uncertain
5. Relative i.e. it differs from region to region, like sale of sarees is preferable in India not in abroad.
6. Multi-faceted changes are viewed differently by different people.

Importance of Business Environment

1. Early identification of opportunities helps to exploit the market.
2. Identification of threats 
3. Coping with changes
4. Improving performance
5. Identifying areas of growth
6. Analysing competitors strategy

VISION AND MISSION STATEMENT

VISION – Desired future position of the country. What we have to achieve in future (long run).

MISSION – Defines the company’s business , its objective and approach. Where are we today(Short run)

This vision and mission statement helps in guiding the management , defining their performance standards ,their decision making and framework for ethical behaviour. Also it helps in setting external links and serves as a public tool.

Vision Statement

It is where you want your business to reach.

Disney – to make people happy

Sony – we invite new thinking , fantastic ideas. Take chances , and help dreamers dream.

ICSI – to be global leader in promoting good corporate governance.

Mission Statement

Vision is the ultimate goal, mission is how you would get there. It explains why our business exists.

Nike – bring inspiration and innovation to every athlete in the world.

Facebook – give people the power to share and to make world open and connected.

Google – organize world’s information and make it accessible and useful

ICSI – develop high caliber professionals facilitating good corporate governance.

TYPES OF BUSINESS ENVIRONMENT

1. INTERNAL ENVIRONMENT :

It includes 6M’s

1. MAN( Human resource) 
2. MONEY (Financial factors)
3. MARKETING RESOURCES
4. MACHINERY (Physical assets)
5. MANAGEMENT STRUCTURE AND NATURE : In a rapid changing environment firms find it difficult to adapt to new changes quickly. Organizations in slow markets are rigid in adapting changes, whereas changing markets are more adaptive.
6. MISCELLANEOUS FACTORS : R&D, company image and brand equity, value system, competitive advantage.

Example : If the Apple company is best in mobile phones , it even sells laptops, watches, etc and people buy them because they have an advantage of the brand.

2. EXTERNAL ENVIRONMENT : 

A. MICRO ENVIRONMENT :

It is also known as Task environment and Operating environment. It consists of factors intimately linked with company performance.

1. Customers : Meeting their needs and wants
2. Employees : Keeping them motivated ,training and developing programmes.
3. Suppliers : The rate at which the product is provided affects the firm directly.
4. Shareholders : Affects the functioning of business as they have voting rights.
5. Media : Positive attention can make the organisation while negative attention can break the organisation. Business employs public relations(PR) or ‘gurus’.
6. Competitors : Does business have a unique selling point(USP) ?

B. MACRO ENVIRONMENT :

Also known as General environment and Remote environment. Acronym of macro environment is ‘STEEP’ 

1. Social cultural and Demographics : Societal structure and values of society greatly impacts the functioning of firms. 
   • For Example : Accepting women to work, quality products due to increase of awareness etc. Demographics refer to size, density and population. Increase in population means more labour that is the reason foreign companies set their business in India due to easy availability of skilled labour.

2. Technology : The technology adopted by the industry determines the type and quality of goods and services produced.
3. Economic conditions : The economy goes through fluctuations with booms and recessions in economic activity. The GDP, markets, availability of capital, etc determines the economic conditions of a country. The policies framed by the government influences business activity like industrial policy, foreign trade policy, etc. Also the type of economic system influences greatly the choice of business i.e. mixed economy, socialist economy or capitalist economy.
4. Ecological and Physical Environment : Climate change , water and fuel cost, availability of natural resources. Like sugar factories are set where sugarcane can be grown.
5. Political and Legal : Political environment includes the political system, government policies, and their attitudes towards the business community. Legal environment includes flexibility and adaptability of law and other legal rules governing the business. A stable political and legal environment is indispensable for business growth.

GLOBAL INTEGRATION AND BUSINESS ENVIRONMENT 

Government faced a serious foreign exchange crisis during the eighties due to which the Government of India introduced radical change in economic policies in 1991. This policy abolished industrial licensing in most of the cases, allowing private participation ; disinvestment was carried out. Foreign investment promotion board was set up to channel foreign capital investment in India.

1. LIBERALIZATION :
   • In order to connect with the world we change our norms. It is a process of eliminating unnecessary controls and restrictions. 
   • It includes abolishing industrial licenses, freedom to decide the scale of business and fixing the price, reduction in tax rates, simplified procedures of import and export and also simplified policies.

2. PRIVATIZATION :
   • Transfer of ownership and management from public to private sector. It is an inevitable historical reaction, even ‘communist’ consider it vital.
   • Important routes of privatization is :
     • Divestiture by sales of share, denationalization or re-privatization, government contracts to outsource services (like IRCTC has contacted its delivery of food), franchising, government leaving a provision completely or partially to the private sector, using leases and management contracts and lastly liquidation.

3. GLOBALIZATION :
   • When you integrate your economy with the world economy. With the change in economic policies in 1991, globalization became a buzzword with expansion of business overseas. Increasing cross border transactions and international capital flow. Globalization is considered to be at two levels i.e. micro (of business and firm) and macro (of world economy).

• The US, Canada and Mexico have signed the North American Free Trade agreement (NAFTA) which will remove all barriers to trade among these countries. The creation of the World Trade Organization(WTO) working to increase cross border trade. 
• Globalization led to deregulation of antitrust laws and proliferation of mergers and acquisitions. 

COMPARATIVE ANALYSIS OF BUSINESS ENVIRONMENT – INDIA AND OTHER COUNTRIES

• India is the world’s largest democracy in the terms of voters and is a parliamentary form – two tiered – executive and judiciary all have distinct but interrelated functions. 
• India was a socialist democratic republic until 1991. India ranks 10^th largest economy in the world and 3^rd largest in the terms of GDP on purchasing power parity(PPP). 
• The recent Global Competitiveness Report covering 148 countries India holds 60^th position. India ranks higher in market (3^rd). It is also the third most attractive destination of FDI after China and U.S.A as per a UNCTAD report.
•  India has one of the highest savings rates in the world.
• The ‘Doing Business’ rankings published by the World Bank based on 10 parameters , in which India ranks 13^th in Protecting Minority Investors i.e. has laws to protect interests of minority shareholders.
• Media advertisement is not allowed in Libya. European countries confine the use of children in commercial ads. India’s advertisement of alcoholic liquor is banned. The buyer of baby food must be told that breastfeeding is the best. In the US federal trade commission is authorized to provide quality, prices, etc.
• Competition Commission of India (CCI) keeps track of anti-competitive practices : mergers and acquisition.
• If a company wants to expand their business they have to satisfy the commission that it was fair and anti-competitive in nature.
• It is easier to set up a manufacturing unit under the ‘Make in India’ scheme.
• Customers in developing countries are highly price sensitive whereas in developed countries they prefer quality.
• In thailand, Helene Curtis switched to black shampoo as women thought it to be better. Nestle Swiss MNC, makes 40 varieties of instant coffee. Vicks vaporub is used as mosquito repellent in some tropical areas. Due to the difference in language tata motors brand name ‘Zica’ changed its name to ‘Tiago’ because ‘Zica’ is epidemic in South America.
• Blue is considered as feminine and warm in Holland whereas in Sweden it is considered masculine and cold. Green as muslim colour but in Malaysia it is associated to illness.

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