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Business environments meaning

Postby Yozshuktilar В» 30.09.2019

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However, all micro forces may not have the same effect on all firms in the industry. For example, suppliers, an important element of micro level environment, are often willing to provide the materials at relatively lower prices to big business firms.

They do not have the same attitude towards relatively small business firms. Similarly, a competitive firm will start a price war if its rival firm in the industry is relatively small.

If the rival firm is a big one which is a capable of retaliating any adverse action from its rival, a competitive firm will hesitate to start a price war. We explain below important factors or forces of micro-level external environment. An important factor in the external environment of a firm is the suppliers of its inputs such as raw materials and components.

A smooth and efficient working of a business firm requires that it should have ensured supply of inputs such as raw materials. If supply of raw materials is uncertain, then a firm will have to keep a large stock of raw materials to continue its transformation process uninterrupted.

This will unnecessarily raise its cost of production and reduce its profit margin. To ensure regular supply of inputs such as raw materials some firms adopt a strategy of backward integration and set up captive production plants for producing raw materials themselves. Further, energy input is an important input in the manufacturing business.

Many large firms such as Reliance industries have their own power generating plants so as to ensure regular supply of electricity for their manufacturing business. However, small firms cannot adopt this strategy of vertical integration and have to depend on outside sources for supply of needed inputs. Further, it is not a good strategy to depend on a single supplier of inputs.

Therefore, to reduce risk and uncertainty business firms prefer to keep multiple suppliers of inputs. A firm has different categories of customers. For example, a car manufacturing firm such as Maruti Udyog has individuals, companies, institutions, government as its customers.

Maruti Udyog, therefore, has catered to the needs of all these types of customers by producing different varieties and models of cars. Besides, a business firm has to compete with rival firms to attract customers and thereby increase the demand and market for its product.

In the present day of intense competition a firm has to spend a lot on advertisements to promote the sales of its product by creating new customers and retaining the old ones. For this purpose, a business firm has also to launch new products or models. Therefore, to survive and succeed a firm has to make continuous efforts to improve the quality of its products. Marketing intermediaries include agents and merchants such as distribution firms, wholesalers, retailers.

There are marketing service agencies such as marketing research firms, consulting firms, advertising agencies which assist a business firms in targeting, promoting and selling its products to the right markets. Thus, marketing is an important link between a business firm and its ultimate buyers. A few years ago chemists and druggists in India declared a collective boycott of a leading pharma company because it was providing a low retail margin. They succeeded in raising this margin.

This shows that a business firm must take care of its intermediaries if it has to succeed in this age of intense competition. Business firms compete with each other not only for sale of their products but also in other areas. Absolute monopolies in case of which competition is totally absent are found only in the sphere of what are called public utilities such as power distribution, telephone service, gas distribution in a city etc.

This competition may be on the basis of pricing of their products. The readers will be witnessing how intense is the competition between Coca Cola and Pepsi Cola. Sometimes there has been price war between them to capture new markets or enlarge their market share. Likewise, there is severe competition between the manufacturers of Aerial and Surf washing powders, between manufacturers of various brands of colour TV. This type of competition is generally referred to as brand competition as it relates to producing and selling different brands of a product.

But not only is there a competition among the producers producing different varieties or brands of a product but also among firms producing quite diverse products as all products ultimately compete for attracting spending by the consumers of their disposable incomes. For example, competition for a firm producing TVs does not come only from other brands of TV manufacturers but also from manufacturers of air conditioners, refrigerators, cars, washing machines etc.

All these goods compete for attracting disposable incomes of the final consumers. Competition among these diverse products is generally referred to as desire competition as all these goods fulfill the various desires of the consumers who have limited disposable incomes. As a consequence of liberalisation and globalisation of the Indian economy since the adoption of economic reforms there has been a significant increase in competitive environment of business firms.

Now, Indian firms have to compete not only with each other but also with the foreign firms whose products can be imported. For example, in the USA American firms faced a lot of competition from the Japanese firms producing electronic goods and automobiles. Similarly, the Indian firms are facing a lot of competition from Chinese products.

Finally, publics are an important force in external micro environment. Environmentalists, media groups, women associations, consumer protection groups, local groups, citizens associations are some important examples of publics which have an important bearing on environment of the firms.

For example, a consumer protection firm in Delhi headed by Sunita Narain came out with an amazing fact that cold drinks such as Coca Cola, Pepsi Cola, Limca, Fanta had a higher contents of pesticides which posed threat to human health and life.

This produced a good deal of adverse effect on the sale of these products in The Indian laws are being amended to ensure that these drinks must not contain pesticides beyond European safety standards. Similarly, environmentalists like Arundhi Roy have been campaigning against industries which pollute the environment and cause health hazards.

Women in some villages of Haryana protested against liquor shops being situated in their localities. Thus, the existence of various types of publics influences the working of business firms and compels them to be socially responsible. Apart from micro-environment, business firms face large external environmental forces. The external macro environment determines the opportunities for a firm to exploit for promoting its business and also presents threats to it in the sense that it can put restrictions on the expansion of business activities.

The macro-environment has thus both positive and negative aspects. An important fact about external macro-environmental forces is that they are uncontrollable by the management of a firm. Because of the uncontrollable nature of macro forces a firm has to adjust or adapt itself to these external forces. Economic environment includes the type of economic system that exists in the economy, the nature and structure of the economy, the phase of the business cycle for example, the conditions of boom or recession , the fiscal, monetary and financial policies of the Government, foreign trade and foreign investment policies of the government.

These economic policies of the government present both the opportunities as well as the threats i. Many industries were reserved exclusively for investment and production by the public sector. Private sector operations were limited mainly to the consumer goods industries. Even in these goods the private sector production and operation was controlled by industrial licensing system, Monopolistic and Restrictive Trade Practices MRTP Commission.

The private sector was also subjected to various export and import-restrictions. High tariffs were imposed to protect domestic industries and to pursue import substitution strategy of industrial growth. Now, there have been significant changes in the economic policies since which have changed the macroeconomic environment for private sector firms.

Far-reaching structural economic reforms were carried out by Dr. Industrial licensing has been abolished and private sector can now invest and produce many industrial products without getting license from the government. Many industries, except only a few industries of strategic importance, which were earlier reserved for the public sector have been thrown open for the private sector.

Import duties have been greatly reduced due to which domestic industries face competition from the imported products. Incentives have been given to boost exports. Rupee has been made convertible into foreign currencies on current account. It is thus evident that new economic reforms carried out since has significantly changed the business environment.

Members of a society wield important influence over business firms. People these days do not accept the activities of business firms without question. Activities of business firms may harm the physical environment and impose heavy social costs.

Besides, business practices may violate cultural ethos of a society. For example, advertisement by business firms may be nasty and hurt the ethical sentiments of the people.

Businesses should consider the social implications of their decisions. This means that companies must seriously consider the impact of its actions on the society. When a business firm in their decision making take care of social interests, it is said to be socially responsible. Social responsibility is the felt obligation or self-enforced duty of business firms to serve or protect social interests.

By doing so they promote social well-being. Good corporate governance should be judged not only by the productivity and profits earned by a business firm but also by its social-welfare promoting activities.

It is worth noting that in modern management science a new concept of social responsiveness has been developed. It may be noted that social responsibility or social responsiveness is related to ethics. The discipline of ethics deals with what is good and bad, or right and wrong or with moral duty and obligation. Further, even if managers enjoy full freedom to adopt actions and policies in accordance with the conceived notion of social responsibility, they may not do so if standards applied to evaluate their performance are quite different.

Every manager would like its performance to be positively appraised. Therefore, if the performance of managers of business firms are judged by the amount of profits. Businesses are closely related to the government.

The political philosophy of the government wields a great influence over business policies. Besides, it required that working of the private sector were to be controlled by a suitable industrial policy of the government. In this political framework provide business firms worked under various types of regulatory policies which sought to influence the directions in which private business enterprises had to function.

Besides, role of foreign direct investment was restricted to only few spheres. However, since several structural economic reforms have been undertaken following a change in political philosophy in favour of a free market economy. To encourage the growth of the private sector in India, licensing has now been abolished, role of public sector greatly reduced and foreign capital, both direct and portfolio, is being encouraged to raise the rate of capital formation in the Indian economy.

The nature of technology used for production of goods and services is an important factor responsible for the success of a business firm. Technology consists of the type of machines and processes available for use by a firm and the way of doing things. The use of a superior technology by a firm gives it a competitive advantage over its rival firms.

MEANING OF BUSINESS ENVIRONMENT, time: 4:22
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