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MODULE 1Overview of business environment
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• What is business?
• Organised efforts of enterprises for the supply
  of goods and services in a society and making
  profit in the process.
• An economic act, carried out by an organization
  to achieve some targets.
• Importance of business
• 1. An important institution in the society.
  Business and society are dependent on each other
• 2. Supplies goods and services
• 3. Creates employment
• 4. Contributes to the economic growth of a
  country
• Characteristics of todays business
• Change modern business is dynamic, new
  technologies, new products
• Vastness Mass production, mass marketing
  fetching economies of scale to the manufacturers
  and the resultant benefits getting passed on to
  the buyers.

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• 3. Diversification is a form of growth strategy
  for a company. It seeks to increase profitability
  through greater sales volume obtained from new
  products and new markets. It also tends to spread
  the dependency of the business on fewer products.
  Tata group, a premier business house, is into
  iron steel, fertilizers, chemicals,
  automobiles, telecom, tea, shipping, hotels,
  information technology, printing, consultancy.
  Similar is the story of other business groups as
  well.
• There are three types of diversification
  concentric, horizontal, and conglomerate.
• Concentric diversification refers to the process
  of adding new, but related products or services.
  Hindustan Unilever Ltd. is the best example of
  concentric diversification. In one line it has
  several brands. e.g. in soaps, it has Lux, Liril,
  Lifebouy, Pears, Rexona, Hamam, Breeze, Dove.

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Offering new and unrelated products or services
to current customers is called horizontal
diversification. In a competitive environment,
this form of diversification is desirable if the
present customers are have a good image of the
companys products and if the new products have
good quality, well promoted and priced. In other
words, this strategy tends to increase the firms
dependence on certain market segments. e.g. in
consumer non-durables, Hindustan Unilever is
offering products like soaps, shampoos, washing
powder, hair oils, moisturizing cream, ketchup,
jams, tea, atta, salt, and ice creams to the same
set of customers. Haldirams offerings like
traditional Indian sweets, namkeens, and syrups
(thandai), alongside following a dual selling
approach, i.e. company-owned food outlets, and
distributor-retailer system of reaching to the
consumers.
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• Conglomerate diversification refers to adding new
  and unrelated products or services that have no
  technological or commercial synergies with
  current products, but which may appeal to new
  groups of customers. Like the Anil Dhirubhai
  Ambani groups presence in varied areas like
  power generation and distribution, telecom
  services, cinema production, DTH services,
  financial products like mutual funds, and life
  insurance etc.
• Main reasons of adopting such a strategy is to
  tap profitability existing in different
  industries, risk diversification, and better
  reputation / brand building as the company gets
  bigger.
• 4. Globalisation going international is yet
  another feature of modern businesses. Production
  facilities are being set-up in different
  countries and products being sold world wide.
  Gradually, businesses are exposed to global
  competition and risks. Technological innovations,
  crumbling trade barriers, global flow of capital
  and technology, information explosion, changing
  life styles, intensity of market competition, are
  all strengthening globalisation of businesses.

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5. Science an important force affecting
business. Products / services being demanded and
offered, means of manufacturing and selling are
fast changing. This is primarily because of
continuous development in science and technology.
6. Information Yet another characteristic of
contemporary business is the significance of
information, which is key to success of every
business. Sources of information such as,
internet, television, print media etc. play a
important role in business decision making.
Further, with the scientific advancement, the
system of getting and giving information,
processing and storing data, preparation of
effective records and reports has also changed
tremendously. 7. Government interference
makes laws, rules regulations, polices, levy
taxes etc., thereby affecting business.8.
Competition eliminate inefficiencies, cut down
costs, improve productivity, and offer
competitively in market in order stay fit.
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• Business environment
• That which envelops the business firm
• consists of all those factors that have a bearing
  on the business.
• something external, beyond the control of an
  organization.
• Points to note
• There exists a symbiotic relationship between
  business and its environment i.e, the business
  is influenced by its environment and in turn, to
  a certain degree (and along with other firms) it
  influences the environment.
• The business environment always keeps changing
  (evolving).

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• 3. Therefore, the survival success of a
  business firm depends upon
• its innate strength resources at its command,
  physical resources, human resources, skill and
  organisation
• its adaptability to the environment
• The extent to which the environment is favourable
  to the development of the organisation
• Two set of factors affecting business -
• The internal factors (present inside the firm)
  and
• The external factors (present outside the firm).

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• Factors forming the Internal Environment
• 1. Promoters / shareholders values
• 2. Mission objectives
• 3. Management structure nature
• 4. Internal human relationships
• 5. Physical assets and facilities
• 6. Financial factors / capabilities financial
  policies, financial position, capital structure
  etc.).
• 7. Human resources skill, quality, morale,
  comittment, attitude etc.
• 8. Company image / brand equity winning the
  customer, launching new products, raising
  finance, forming joint ventures, soliciting /
  maintaining business associates.
• 9. Technological Capabilities companys ability
  to innovate, use/ offer the latest efficient
  technology for its advantage.

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• Internal factors
• Generally regarded as controllable factors
  because the firm has control over these factors
  the firm can alter or modify them to suit the
  changing external environment.
• Form the Strengths and Weaknesses of the business
  firm.

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External environment

• Consists of institutions, organizations and
  forces operating outside the company.
• The external environment throws Opportunities and
  Threats on to the business.
• The success of a business depends upon its
  successfully grabbing (utilizing) the
  opportunities and countering the threats by
  effectively leveraging its strengths and
  overcoming its weaknesses.
• In other words, the survival and success of a
  business firm depend on its ability to use
  resources at its command (internal strength) and
  its adaptability to the external environment.

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External Environment has two layers

1. Micro (Task / operating) environment consists
   of factors in the companys immediate
   environment, those having a direct bearing on the
   performance of the company. It includes
   customers, suppliers, competitors, marketing
   intermediaries, publics etc.
2. Macro (General /Remote) environment refers to
   larger societal forces (economic and
   non-economic) those affect all the factors in the
   companys immediate environment, including the
   company namely, demographic, economic,
   political, technological, cultural and legal.
   They influence business activity in general.

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Factors effecting external environment of business

• Micro external environment
• Customers
• Suppliers
• Competitors
• marketing intermediaries
• Financiers
• publics

• Macro external environment
• Domestic Macroeconomic environment
• International factors
• Cultural factors
• Political factors
• Technological factors
• Legal factors
• Ecological factors
• Demographic factors