1. BUSINESSENVIRONMENT,DOCUMENTANDPOLICY

2. MEANING AND CONCEPTIts is the combination of words:Business (represents the organized efforts ofenterprise to supply goods/services to consumers)+Environment (includes the factors which can leadto opportunities for or threats to the firm)The BE encompasses all conditions,circumstances and influence surroundingwhich affecting the development of anorganization. 3. NEED AND IMPORTANCEHelps firms to identify opportunitiesand getting the first mover advantage.(eg.Maruti Udyog,Tata NANO).Helps firm to identify threats and earlywarning signals.(eg.MNC entering to Indian mkt. ). 4. NEED AND IMPORTANCEHelps to Cope-up with rapid change.Improves performance that leads tolong term success.Helps in gathering qualitativeinformation that can be utilized informulating effective strategy/plan. 5. COMPONENTS1. INTERNAL ENVIRONMENTAll those factors which are present withinthe business itself and are controllable.These are: Culture and value system Objective Organizational structure(hierarchical relationship) Human resource 6. COMPONENTS2. External EnvironmentAll those factors which exist outsidethe business and are usually out ofcontrol of the business.External environment is further dividedinto two parts:1. Micro Environment2. Macro environment 7. 1. Micro EnvironmentThat environment which includes thosefactors with which business is closelyrelated. These are:CustomerSuppliers (no.of suppliers)Competitors (bringing new product)Public (opposing the noisy business, favourablereports by media/press)Marketing intermediaries 8. MACRO ENVIRONMENTDEMOGRAPHIC(decides the type ofpdt,cost)POLITICAL/LEGAL(companies act,MRTP act, consumerprtcn act etc.)SOCIO-CULTURE(belief,values,cons--umer taste)TECHNOLOGICAL(tech.advancement,rate of obsolesce)GLOBAL(business relationshipacross the border)ECONOMIC(economic structure ofthe country, change inthe economic policy)BUSINESS 9. PORTERS FIVE FORCES MODELPorters Model is actually a business strategy tool thathelps in analyzing the attractiveness in an industrystructure. It let you access current strength of yourcompetitive position and the strength of the position thatyou are planning to attain.Porters Model is considered an important part ofplanning tool set. When youre clear about where thepower lies, you can take advantage of your strengthsand can improve the weaknesses and can competeefficiently and effectively.Michael Porters model of competitive forces assumesthat there are five competitive forces that identifies thecompetitive power in a business situation. 10. Threat of substituteproducts Threat of newentrants Intense rivalryamong existingplayers Bargaining powerof suppliers Bargaining powerof Buyers 11. A. THREAT OF SUBSTITUTE PRODUCTSThreat of substitute products means how easily yourcustomers can switch to your competitors product. Threat ofsubstitute is high when:There are many substitute products available.Customer can easily find the product or service thatyoure offering at the same or less price.Quality of the competitors product is better.Substitute product is by a company earning high profitsso can reduce prices to the lowest level.Eg.: TV transmission , Kodak and Fuji photo film 12. B. THREAT OF NEW ENTRANTSThreat of new entry depends upon entry and exit barriers. Threat ofnew entry is high when:Capital requirements to start the business are less.Customers can easily switch (low switching cost).Your key technology is not hard to acquire or isnt protectedwell.Your product is not differentiated.That segment is more attractive which has high entry barriers andlow exit barriers.The worst condition is when entry barriers are low and exit barriersare high then in good times firms enter and it become very difficultto exit in bad times. 13. C. INDUSTRY RIVALRYIndustry rivalry mean the intensity of competitionamong the existing competitors in the market. Intensity ofrivalry depends on the number of competitors and theircapabilities. Industry rivalry is high when:There are number of small or equal competitors andless when theres a clear market leader.Customers have low switching costs.Industry is growing.Exit barriers are high and rivals stay and compete.Fixed cost are high resulting huge production andreduction in prices.These situations make the reasons for advertisingwars, price wars, modifications, ultimately costsincrease and it is difficult to compete. 14. D. BARGAINING POWER OF SUPPLIERSBargaining Power of supplier means how much yoursupplier have control over increasing the Price of supplies.Suppliers are more powerful when :Suppliers are concentrated and well organized(Drug industry relationship to hospitals)A few substitutes available to suppliesTheir product is most effective or uniqueSwitching cost, from one suppliers to another, is highYou are not an important customer to Supplier. It is best way to make win-win relation with suppliers.Its good idea to have multi-sources of supply. 15. E. BARGAINING POWER OF BUYERSBargaining Power of Buyers means, How much control thebuyers have to drive down your products price, Can they worktogether in ordering large volumes. Buyers have morebargaining powerwhen:Few buyers chasing too many goodsBuyer purchases in bulk quantitiesProduct is not differentiatedBuyers cost of switching to a competitors product is lowShopping cost is lowBuyers are price sensitiveBuyers bargaining power may be lowered down by offeringdifferentiated product. If youre serving a few but hugequantity ordering buyers, then they have the power to orderyou. 16. ECONOMIC ENVIRONMENTIt includes the economic conditions of thecountry .The main factors that affects EEare:Economic systemEconomic conditionsEconomic Policy 17. ECONOMIC SYSTEMThese system serves to explain whetherbusinesses are privately owned orgovernment owned, or if there is acombination of private and govt.ownership. Basically three systems canbe identified:1. Capitalism2. Communism/socialism3. Mixed economy 18. 1. CAPITALISMIt refers to that economic system in whichfactors of production are privately owned or inindividual hands . They are free to use them toearn profit . The main features are:Right to private propertyFreedom of choice by consumersProfit motiveImportance of Price systemCompetition 19. There is hardly any country that can becalled capitalist in a true sense.Though countries like US,UK, Japan,south Korea are called capitalist.Butthey are actually example of mixedcapitalist economy.The means of production are owned byprivate enterprises but the govt.directlycontrols and regulates the working . 20. 2. COMMUNISM/SOCIALISMIt is based on the philosophy of equality.Itbelieves in classless society. Main activitiesare regulated and controlled by the Govt. inthe interest of public. The main features are :Social ownership of means ofproduction (means of production are propertyof state , not any of private individual).No private enterpriseClassless society (every individual enjoysequality of opportunity regardless of caste, familyand religion).No freedom of choice by consumers(doesnt enjoy sovereign rights .what to supply ,how to supply , how much to supply and whatprice-is decided by the state only). 21. China, Polland, Romania, north korea,Cuba, East Germany etc. tried toestablished socialism but failed.Now except North Korea, all other arefollowing the mixed economy. 22. 3. MIXED ECONOMYA mixed economy is a combination of thetwo extremes Socialism and capitalism.In this economy both the private andPublic sectors exist and work together inthe national interest. 23. FEATURES:Co-existence of both.Freedom of choice by consumer isprotected.Prices are fixed and regulated by the govtas well as based on market forces.(incritical goods like oil , LPG govt fix the price).Govt. protects Labour interests andweaker sections from exploitation bycapitalist.Consumer sovereign rights are protected.(govt protects the consumers from the exploitation byprivate entrepreneurs) 24. Almost every country is a mixedeconomy today.Either it is mixed capitalist like USand UK or it is mixed socialist likeChina and India. 25. INTERACTION MATRIXStudies interaction, interdependence , interlocking ofvarious environmental factors.Environmental analysis & diagnosis give strategists time toanticipate opportunities & to plan to take optionalresponses to these opportunities.Its also helps strategists to develop an early warningsystem to prevent threats & to develop strategies whichcan turn a threat to the firms advantage. 26. INTERACTION MATRIXThe interaction between economic and non-economicenvironment can be explained with the help ofinteraction matrix.For this purpose , business environment can beclassified on the basis of :FactorBoundariesTime 27. 1. ON THE BASIS OF FACTORSCritical elements of Non-economic environment aretaken along the rows and the critical elements ofEconomic environment along the columns.The + sign shows the interdependence of economicand non-economic factors.(When a given element of EE influences a givenenvironment of NEE , a short line is drawn vertically , andin case of vice-versa , a short line is drawn horizontally,resulting the positive sign).This matrix serves as a tool to environmental reaction andrelation. 28. ECONOMICENVIRONMENTNON ECONOMIC ENVIRONMENTSociological Educational Political &LegalHistorical PhysicalEconomic system + + + + +Economic structure + + + + +Economic planning + + + + +Economic policies + + + + +Economic Programmes + + + + +Functioning of Economy + + + + +Economic Control &Regulation+ + + + +Economic Growth &Development+ + + + + 29. 2. ON THE BASIS OF BOUNDARIES Interaction matrix 2 explains the relationshipamong local, regional , and internationalenvironment. It is a two-by-six matrix. 30. Non-nationalEnvironmentNATIONAL EnvironmentEconomicenvironmentNon-economicEnvironmentLOCAL EconomicNon-economicREGIONAL EconomicNon-economicINTERNATIONAL EconomicNon-economic++++++++++++ 31. 3. ON THE BASIS OF TIME It shows the interaction between pastpresent and future. Its a two-by-four matrix. 32. Non-presentEnvironmentPRESENT EnvironmentEconomicenvironmentNon-economicEnvironmentPASTEconomicNon-economicFUTUREEconomicNon-economic++++++++ 33. ECONOMIC GROWTHThe classical breakdown of all economic sectors follows:Primary sector : is the sector of an economy making direct useof natural resources. This includes agriculture, forestry andfishing, mining & quarrying.Secondary or industrial sector: industrial sector includesthose economic sectors that create a finished, tangible producti.e. production of goods and construction.The industrial sector generally takes the output of the primarysector and manufactures finished goods. Many of theseindustries consume large quantities of energy and requirefactories and machinery to convert the raw materials into goodsand products. They also produce waste materials and waste heatthat may pose environmental problems or cause pollution. 34. Tertiary sector (also known as the service sector orthe service industry).The Services Sector includes sub-sectorslike :TradeHotels and RestaurantsTransportStorage & warehousingCommunicationBanking and InsuranceReal Estate; Business servicesPublic administration and defenceSocial and personal services andOther services including Education, Medical and Health,Religious and Other Community Services, Legal Services,Recreation and Entertainment Services. 35. Quaternary SectorThe quaternary sector of the economy consists ofintellectual activities. Activities associated with this sectorinclude government, culture, libraries, scientific research,education, and information technology.Quinary SectorSome consider there to be a branch of the quaternarysector called the quinary sector, which includes thehighest levels of decision making in a society or economy.This sector would include the top executives or officials insuch fields as government, science, universities,nonprofit, healthcare, culture, and the media.Industries that transform semi-manufactured goodsinto goods needed by final demand are called "lastindustries" or "enclave import industries". 36. BY OWNERSHIPAn economy can also be divided along different lines:Public sector or state sectorPrivate sector or privately run businessesSocial sector or Voluntary sector 37. A FORWARD LINKAGE When one industry or sector produces theraw materials for another,When one industry or sector produces the raw materials for another,this is referred to as the forward linkage.Forward linkages are a distribution chain that connects a producerwith the customers.A BACKWARD LINKAGE backward linkages is when one industryor sector has to depend upon another industry that id not is notdirectly related to it for servicesBackward linkage is a channel used between a company and itssuppliers to make a flow of information, material and money bycreating an economic interdependence.Normally, projects create both forward and backward linkages.Investment should be made in those projects that have the greatesttotal number of linkages 38. AN EXAMPLE of an industry that has excellent forwardand backward linkages is the steel industry.Backward linkages include coal and iron ore mining.Forward linkages include items such as canned goods.