TYPES OF BUSINESS ENVIRONMENT

There are four types of Business Environment:

• Internal Business Environment
• External Business Environment
• Micro Business Environment
• Macro Business Environment

Different Types of Business Environment

Internal Business Environment

The organization’s internal business environment is under its control. Important internal influences include, in brief:

Culture and Value System: Corporate culture can be thought of as a set of common values and beliefs that influence the standards of behavior within an organization. A value is a persistent preference for a way of acting or a final condition. The founders’ value system has a significant and long-lasting influence on the organization’s value system. Value system has an impact on business decision-making in addition to operations and behavior.

Mission and Objectives: The company’s business objectives and mission statement. Priorities, development directions, business philosophies, and business policies are determined by the organization’s mission and objectives.

Management Structure and Nature:
The relationship between the tasks and their subtasks is known as structure. The range of management and hierarchical relationships across various functional areas are what structure is all about. Example: Structure of top management, the pattern of shareholding etc.

Human Resource: It addresses issues including human resource planning, hiring, screening, and development, as well as pay, interaction, and evaluation. Besides this internal buisness environment, it includes corporate resources, production/operation of goods and services, finance and accounting system and methods, marketing and distribution.

External Business Environment

External Business Environment refers to elements outside the sector that could have a big impact on the firm’s strategies. The six major dimensions of the external business environment are the following: technological, sociocultural, political/legal, technological, economic, and global. These aspects of the external world are all interconnected. These factors have an impact on enterprises as well as one another. When the Congress administration took power in 1991, there was a political upheaval that led to a huge economic change known as LPG, or Liberalization, Privatization, and Globalization. As a result, the technological environment of the nation improved. The sociocultural milieu of the nation has changed as a result of these technical and economic changes.

As a result, India’s population has drastically changed over the past ten years as per capita earnings have increased. The number of high earners and young achievers has dramatically increased, which has altered the entire calendar of product demand:

Political Environment: The success of a country’s businesses is largely determined by its political climate. Example: Suddenly, the political landscape in the USSR changed following the 1917 revolution. Coca-Cola and IBM were forced to leave India in 1977 when the Janta government came into power. The Janta government forced all liquor companies to cease operations. The whole commercial landscape in Russia transformed in the years following the fall of the USSR’s rule in the late 1980s and early 1990s.

Regulatory and Legal Environment: The legal and regulatory framework of the nation is governed by the political climate. The regulatory environment, which establishes a business’s dos and don’ts, is essential. Every nation has a unique legal system. The Companies Act, which regulates businesses, the MRTP Act, which prohibits monopolies, several share-related legislation, the Consumer Protection Act, rules pertaining to the environment, and the GATS implementation are all in place in India. International patent laws have been implemented as a result of GATS. Laws governing imports, exports, licenses, and other matters also have a significant impact on business and the future of companies.

Demographic: The demographic context determines an organization’s marketing mix. It determines the kind of goods the company produces. India invests heavily in research & development to lower product costs and introduce new items at the lowest prices. An ice cream cone costs five rupees, but a shampoo sachet only one rupee.

The pricing, promotion, and distribution techniques are determined by the demography. The majority of India’s population—70% of whom are young—lives in villages, which is why every business is releasing new items with an eye toward the rural market. To serve the rural market, ITC established the innovative and ambitious e-chaupal program.

Socio-culture: People’s personalities and behavioral patterns are significantly influenced by socio-cultural factors such their beliefs, value system, attitudes, and demographic make-up. Through the 1990s, consumer preferences saw a significant upheaval. Because of this, more automobiles, refrigerators, air conditioners, and other items that were once seen as extravagant and luxurious are now being produced. The socio-cultural paradigm also determines consumer preferences in other areas. Because of the disparate preferences, businesses launch distinct products in the south and north. Cultural preferences force businesses to alter their product portfolios, as McDonald’s and KFC discovered when they opened their restaurant chains in India.

Technological: In the process of developing a corporate strategy, technological forces present a wide range of opportunities and risks that must be taken into consideration. An organization’s “products, services, markets, suppliers, distributors, competitors, consumers, production process, marketing tactics, financial composition, and competitive position” may be significantly impacted by technological innovation. Operating in the technical environment is influenced by a number of significant elements, including:

• The expense of acquiring technology, cooperating with others to acquire technology, and transferring technology from business sources, external sources, and overseas sources.
• Rate of technological advancement and obsolescence.
• The effects of technology on people, on the human-machine system, and on the environment.
• The use of infrastructure technologies and communication in management.

Global Business Environment: The global environment is made up of all elements that function internationally, cross-culturally, and across national boundaries. Today’s world is a global village, and in terms of commerce, it is becoming ever smaller.

Economic Environment: The macro level economic elements that affect wealth production and distribution and have an effect on an organization’s operations make up the economic environment.

Whether a nation has a socialist, mixed, or capitalist economic system, it significantly affects its economy. Economic aspects that have an impact on business in an economy include international trade policy, industrial policy, fiscal policy, GDP growth rate, licensing policy, monetary policy, development of financial institutions, development of the money and stock markets, and the degree of globalization. A small adjustment to monetary policy has the potential to inject billions of rupees into the economy and lower interest rates, which would spur more investment and inflation. Also, the amount of investment in any nation is determined by bank lending rates. The level of investment declines as the interest rate rises.

Example: This interest rate typically ranges from 4% to 6% in developed countries like the US. The prime lending rate (PLR) in India was 17%–18% in 1991; but, by 2000, due to a change in the nation’s economic policies, it had fallen to 8%–10%. With effect from January 1, 2009, the Prime Lending Rate (PLR) is currently 14.75% p.a.

National Competitive Advantage:
Notwithstanding globalization, industrialization is concentrated in a relatively small and narrow range of nations. The most prosperous computer and biotechnology companies are located in the US, while the most prosperous chemical and engineering sectors are found in Germany and Japan, respectively. Similar to how many of the companies that make bespoke software are concentrated in India, so are the successful call centers. This implies that a company’s competitive position in the global marketplace may be significantly influenced by the country and the environment in which it is situated.

Micro Business Environment

The environment that a business encounters in its particular industry is referred to as the micro buiness environment or the competitive environment. This area could be a sector of the economy or a so-called strategic group. Firms analyze the level of competition in addition to the fundamental demand and supply aspects since it affects whether they will stay in the same industry or enter a new one. The firm’s competitive position affects every business choice, including what to sell, how to price it, how to distribute it, how to promote it, and what products to offer. Microenvironments are those that are in close proximity to businesses and have an immediate impact on their daily operations. It is a collection of forces or factors that are close to the organization and can influence the performance as well as the day to day
activities of the firm.

Example: When choosing its marketing mix, a new participant in the glucose biscuit industry must research and take into account the marketing mix and business strategy of established competitors like Britannia, Parle, Priyagold, etc.

The company, employees, suppliers, marketing intermediaries, media, competitors, general public, shareholders, and customers are the nine elements of the micro business environment.

The Company: For the purpose of creating marketing plans, marketing management must take into consideration a number of groups inside an organization, including top management, finance, operations, human resources, research and development (R&D), accounting, etc. To assist them in making decisions using more comprehensive tactics and techniques, marketing managers must collaborate directly with them.. With marketing team taking the lead, other departments like manufacturing, finance, legal and human resources teams takes the responsibility for understanding the customer needs as well as creating customer value.

Employees: One of a corporation’s most crucial production variables is labor or employees. The success (or failure) of a corporation is significantly influenced by its human resources. So, it is crucial to choose the right people who are most suited for your business. These employees’ development and training are equally crucial. Employees are the foundation of every firm, so the business will never prosper if care is not taken in this area.

Suppliers:
The whole network a firm uses to deliver value to its customers includes suppliers. They are the ones who supply raw materials, components, cutting tools, other kinds of equipment, etc. to businesses. For every organization’s operations to run smoothly, the caliber and dependability of its vendors are crucial. Marketing managers need to keep an eye on the prices and availability of their suppliers. Natural catastrophes or other incidents that result in scarcity or delay in supplies could harm sales in the short term and result in unhappy customers in the long run.

Marketing Intermediaries: The marketing intermediates play a significant role in the network of value delivery for the organization. These include those people or businesses who assist the business with marketing, sales, and distribution of its items to the final consumers. Examples include middlemen (agents or merchants) who assist the business in locating customers, physical distribution businesses like warehouses or transportation businesses that assist the business in stocking and transporting goods from their point of origin to their destination, and marketing service businesses like market research and advertising firms.

Media: Every business will require media to market their products and promote their brand. So, the business must continue to have a good working relationship with the media. Any unfavorable media publicity could cause the business to suffer severe losses. This is why businesses employ public relations specialists to assist them in making good use of the media.

Competitors: Competitors are rivals who engage in market and resource competition with the organization. The marketing notion states that in order to succeed, a business must offer higher consumer value and satisfaction than its rivals. Marketers must strive to acquire a competitive advantage over rivals by strategically placing their products in the market, rather than just adapting to the wants and demands of their target audience. Pure monopolies don’t exist anywhere in the world. Whether a company is large or small, competition and competitors exist. As a result, the business must constantly monitor its rivals. The business must make sure that each of its items has a USP that distinguishes and differentiates it from competitors. The products offered must also be better and cheaper than those of the competition.

General Public: The term “public” refers to a group of people who are either currently or potentially interested in the company’s product or who have the potential to affect the organization’s capacity to accomplish its goal. In a company’s marketing environment, there are seven different categories of the public that have been recognized, including the general public, financial public, media public, government public, citizen-action public, internal public, and local public.

Shareholders: Shareholders contribute to the business, but they go beyond being just investors. They are in a sense the company’s owners because they have shares in it. This implies that they have a voice in how a business is run. Also, shareholders will expect a return on their investment. So, it is the obligation of the corporation to generate profits and distribute these benefits to the owners. Wealth must be produced for these shareholders. Dividends must also be paid in order to maintain interest. So, the business must strike the correct balance between its own well-being and the interests of its stockholders.

Customers: Customers are the most significant players in the company’s surroundings. The goal of the entire value delivery network is to connect with and engage the target audience. Companies may try to target one of the following five customer markets. Consumer markets, commercial markets, government markets, reseller markets, and foreign markets are among them. Most organizations operate primarily to fulfill the needs and desires of their clients. The business wants to satisfy the customer while also making a profit. The ultimate goal is to offer the consumer the greatest goods and services at the most competitive pricing. Failing to do so could lead to the company’s demise. Because of this, it’s grown more crucial to listen to customers and value their feedback. This is why customer-consumer surveys have increasing importance in today’s markets.

Macro Business Environment

A macro business environment is the collection of circumstances that affect the economy as a whole rather than just one industry or geographical area. The macro business environment, in general, comprises developments in the GDP, inflation, employment, spending, and monetary and fiscal policy. The macro business environment is the firm’s remote environment, or the external setting in which it operates. Typically, the corporation cannot control its environment because it is too big and unpredictable. So, the company’s ability to adjust and respond to changes in the macro business environment will play a significant role in determining its level of success.

As opposed to the performance of a specific business sector, the macro business environment is intimately related to the overall business cycle. The capacity and willingness of consumers to spend can also be directly impacted by the macro business environment. Variations in consumer expenditure can have a significant impact on the markets for luxury goods and high-end consumer products. Businesses and economists regularly analyze consumer responses to the overall macro business environment as a sign of an economy’s health. The company must first carefully watch the many components of the macro business environment. They will be better able to comprehend the macro business environment’s dynamic nature as a result. Also, it aids in their acclimatization to the environment’s ongoing changes. The micro business environment is unique to a company, its immediate surroundings, or the industry in which it operates. In contrast, the macro environment refers to broader factors that can affect a business.

Factors of the Macro Business Environment

Let us look at the most important factors of the macro business environment. A simple mnemonic to remember these factors is STEEP.

Socio-Cultural Environment:
As the social environment changes, it may have a direct or indirect impact on the organization since social values and culture play a significant influence in how an environment functions. For instance, society has changed recently, and people no longer retire at age 60. After age sixty, they continue to work an additional five to ten years. Hence, this has greatly impacted businesses. For the long run, cultural factors have a big impact on a company’s success. especially in a place like India where complex and powerful cultural influences are present.

Technological Environment:
The firm must be able to keep up with the advances in technology because of the times we live in. There are other forms of technology outside computers and IT services. It consists of goods, production methods, procedures, etc. The advancements in technology can greatly benefit a company. But, if the technology the company relies on becomes outdated as a result of such changes, that could potentially pose a threat to the company.

Economic Conditions of the Market:
There is a strong correlation between an organization’s performance and the state of the economy. For all of its inputs and output elements, a firm is dependent on the economy. Also, it sells its goods and services in the same industry. Market conditions are never consistently stable. It is constantly changing. All enterprises will profit from the advantageous conditions if there is a market boom. Higher-income, lower interest rates, the availability of additional capital, etc. In the event of a bust, the opposite is also true.

Ecology and Physical Environment:
Any business’s performance is greatly influenced by ecology and the physical environment. Manufacturing and production organizations will find this to be especially true. Take global warming as an illustration. In certain areas, the rainfall has already begun to vary as a result of this change in our physical environment. A shortage of raw materials like jute, cotton, rubber, etc. may result from this in turn having an impact on the crops. A business’s macro business environment is greatly influenced by characteristics including weather, topography, location, climate change, and other ecological considerations.

Political and Legal Factors:
The mix of the legislative, executive, and judicial parts of a nation’s government creates its political climate. The political climate of a nation will largely be influenced by the ideology and political convictions of the party holding power at the state and federal levels. The terms laws, rules, regulations, judgments, etc. that have an impact on how a business operates are referred to as the legal environment. And this will also cover the budget for that particular year as well as the tax legislation. Therefore if business and the economy as a whole are to prosper, solid legal and political governance is crucial.

Examples of Macro Business Environment

A macro business environmental influence that can affect a firm is politics, for instance. These are rules established by the government or businesses with regard to the sector in which they operate. For instance, a government may impose tariffs that raise the price of an imported good a business requires to produce its goods. The corporation can hunt for a domestic supplier for these things that are less expensive than the imported goods rather than paying the tariff. They will have to buy the more expensive imported goods if they can’t find a domestic source. In many instances, the business will have to raise product pricing to cover the additional costs. If sales drop as a result of the company’s higher prices, this could lower revenue.

Components of Macro Business Environment

The components of Business Environment are as follows:

Inflation and Deflation: Purchase power is significantly impacted by changes in wage rates and variations in the price of items.

Consumer Spending: The demand for and supply of goods are influenced by changes in purchasing power.

Monetary Policies: The Federal Reserve establishes proper monetary policies to regulate the state of the economy in the country. Cash reserve ratios, statutory liquidity ratios, repo rates, reverse repo rates, bank rates, etc. are all affected by monetary policies. Moreover, the central bank implements a number of policies regarding open market activities, or the purchasing and selling of government bonds.

Fiscal Policies: To address unfavorable conditions like inflation or deflation, the government frequently implements contractionary or expansionary policies. These metrics deal with taxation, borrowing, and government spending.

Gross Domestic Product: The total amount of products and services produced in a nation is the national output. A declining GDP shows a weak economic situation, whereas a rising GDP shows a strong economy.

Employment Levels: The availability of skilled personnel and unemployment have a significant impact on corporate operations.