BCom 1st Year Business and Business Environment Notes Study Material

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BCom Business and Business Environment Notes Study Material

Every Business enterprise has a continuous interaction with environmental forces. It has a direct relation with its environment. Environment refers to tome all external forces, which have a bearing on the functioning of Business. The environment includes all those factors which can lead to opportunities for or threats to the firm. Obviously, the effectiveness or interaction of an enterprise with its environment primarily determines the success or failure of a business:

MEANING OF BUSINESS

Business is an economic activity. An economic activity is the task of adjusting the resources to ends (targets). Basically, there are two types of activities—Economic and Non-economic activities. Economic activities are related with those activities, which facilitate production, distribution and exchange of goods and services. But Non-economic activities are related with human sentiments or emotions like religion, patriotism, charity etc.

DEFINITIONS OF BUSINESS

The term ‘Business’ is defined by various authors differently:

(i) “Business may be defined as a human activity directed towards production or acquisition of wealth through buying and selling of goods” -L.H. Haney

(ii) “Business comprises all profit seeking activities and enterprises that provide goods and services necessary to an economic system.” -Boone and Kurtz

(iii) “Business may be defined as the organised effort by individuals to produce goods and services, to sell these goods and services in a market place and to reap some reward for this effort.” –Davis Keith

(iv) “The term business means exchange of goods, money or services for mutual benefits.”

On the basis of above definitions we may defined business as an economic activity which involves production or purchase and sale, transfer or exchange of goods and services at a profit through satisfaction of human needs. The profit maximisation is prime objective of a business but we can’t ignore social responsibility of business towards customers, society and nation.

FEATURES OF BUSINESS

Business has following important features:

(i) Provision of goods and services to the society.

(ii) Business activities are directly or indirectly, concerned with sale, transfer or exchange of goods and services for the satisfaction of human needs or wants.

(iii) Business activities are continuous activities.

(iv) It is economic activity related to transformation of goods or services.

(v) Profit the prime motive of any business.

(vi) Risks or uncertainties may be happens in business.

In modern age, the expectations of society to business is increased. Customer satisfaction is prime motive of business instead of profit maximisation for survival in long-run. According to Peter F. Drucker, the objective of business is, to create a customer and to expend market share of business.” In totality it says that. Business is the creation of society and its final objective is to fulfill the needs of the society.(BCom Business and Business Environment Notes Study Material)

OBJECTIVES OF BUSINESS

A business unit has many common objectives are explained as below:

(i) Profit Generation: Profit generation is the primary objective of any business organisation. It is a surplus of income over expenses for expansion, growth and survival of any business in long-run. It is a strong sustainer and motivator of business activities.

(ii) Growth: Growth is second primary objective of business enterprises. An enterprise can’t sustain in long time without adoption of growth policies. These strategies are increase market share, add more products, exploring new markets, cost reduction with increase in productivity, diversify into new areas etc.

(iii) Power: For expansion of business ventures economic and political power must be require. Business confers enormous power on owner and endows them with vast resources. Business executives or big business houses make and unmake political parties and political leaders.

(iv) Employee Satisfaction and Development: To provide employee satisfaction with their development has been one of the objectives of business enterprises. A satisfied employee is precious for any business. For example, Aditya Birla group is a legend in pursuing this objective. It facilitates safety and security measures, family welfare training and development facilities etc. to make satisfied and devoted employee.

(v) Market Leadership: To be a market leader is another important objective of business. In age of cut-throat competition it is very difficult to be a market leader among various firms. Through quality product, innovation, cost reduction, quick supply and after sale-service a firm can be a leader or apex among others.

(vi) Quality Products and Services: The one of the important objective of business is to provide quality products and services to the customers. On the behalf of good quality a business can survive for longer duration in business life. Big brands or big business houses are flourishing mainly because of the quality of its product. For example, Rin, Surf, Lux, Liril, Rexona, Pears etc. are brands, they produce high quality and reasonable products for buyers.

(vii) Service to Society: Customer is the part of society. Profit maximisation is the prime objective of business but a business can’t ignore social responsibility and wellness of society. The modern outlook of business is that the business should not serve the interest of business alone, but also take care of the interests of customers, employees, nation and society. Service of society is the main objective of a non-profit making enterprise.

(viii) Challenging: Business has risks or uncertainties in modern era. In initial stage there is risks for survival and acceptance among buyer and other competitors of business. Business units have big challenges about fund generation and technological changes.

In the past era, the exclusive objective of business was profit maximisation. They totally ignored the social responsibility of business. In modern era, the objective of any business is to achieve profit maximisation through customers’ satisfaction and welfare of society. According to Peter F. Drucker, the prime objective of business is “To create a customer and expand market share of business.” Finally we can say that, in modern age a business cannot isolate itself from the rest of society.(BCom Business and Business Environment Notes Study Material)

CONCEPT OF BUSINESS ENVIRONMENT

Environment refers to surrounding external objects and influences of circumstance under which a organisation expected to exist. Environment is the aggregate of all conditions, events and influences that surround and affect the organisation. Davis Keith defines the environment of business as “the aggregate of all conditions, events and influences that surround and effect it.”

Every business organisation has to interact and transact with its environment. Hence, the business environment has a direct relation with the business. Obviously then, the effectiveness of interaction of an enterprise with its environment primarily determines the success or failure of a business.

There are two types of environmental factors-internal and external – which influence the business policy of an organisation. The internal factors are known as controllable factors because the organisation has control over these factors. The external factors are known as uncontrollable factors because such factors are beyond the control of the organisation.

DEFINITIONS OF BUSINESS ENVIRONMENT

Some definitions of business environment which helps to know about business environment as below:

(i) According to Philip Kotler: “A company’s environment consists of factors and forces that are external to the business management function of the firm, and that impinge on the management’s ability to develop and maintain successful transactions with its customers.”

(ii) According to Andrews: “The term business environment of a company is defined as the pattern of all external influences that affect its life and development.”

(iii) “Business environment consist of all external and internal factors that influence the complex interaction of the market, production and finance—the three basic components of the business world.” –J.A. Kritz and C.T. Duggan

(iv) “An organisation’s external environment, consists of those things outside an organisation such as customers, competitors, Government, suppliers, financial firms and labour pools that are relevant to an organisation’s operations.” -Prof. Gerald Bell

On the basis of above definitions we can say that, business environment is a set of external and internal forces like, social, economic, political and technological forces that are largely outside the control and influence of a business, and that can have positive and negative impact of the business.

FEATURES OF BUSINESS ENVIRONMENT

On the basis of aforesaid concept and definitions we can say that business environment contains some important features as below:

(i) Dynamic in Nature: Business environment is a composition of all external and internal conditions which are dynamic in nature. External factors like market, political, legal, cultural, technological etc. are dynamic in nature and change occurs frequently among them. However, some environmental factors such as economic, technological, and competitive are changing faster than the other environmental factors.

(ii) Business Environment is Complex: It is also complex in nature. It is a aggregation of various external and internal factors like economical, political legal, socio-economic, technological etc., which makes it complex. These elements affect the business in different ways. Therefore we can’t survive in business in long time without pre exercise about affects of these factors. Complexity and Dynamic nature of products make difficult to predict future. According to J.A. Kritz and C.T. Duggan, “Business Environment consists of all external and internal factors that influence the complex interaction of the market, production, and finance—the three basic components of the business world.”

(iii) Set of Internal and External Environment: The business environment consists of two types of factors: External and Internal. The Internal factors are generally controllable factors. These are technical and physical facilities, organisational policies, financial capabilities, personnel capabilities etc. The external environmental factors are uncontrollable these factors like economic political and legal, social and cultural, technological, ecological or natural etc. have an a major affect on the functioning of the business enterprise. Hence, these factors are to be carefully tackled because they facilitate information about opportunities and threats of the enterprise.

(iv) Multi-dimensional: Business environmental is a set of economical, technological, social and political forces, that are largely outside control and they affect business positively as an opportunity and negatively as threats. External factors incorporate all the factors which are outside the organisation and influence the ability to achieve organisational goals through provide opportunities or pose threats to the organisation. In other words, a business environment is multi-dimensional governed by the organisational control process to achieve its goals and objectives(BCom Business and Business Environment Notes Study Material)

(v) Totality of Uncertain Factors: In fast moving modern era. It is very difficult to predict future happenings, when environmental changes are taking place very quickly. All external factors are uncertain, which affect the organisation and operations of business.

SCOPE OF BUSINESS ENVIRONMENT

Business environment is dynamic. There is continuous change in its components and elements. Generally, business environment is composed of two types of factors: internal factors and external factors. Internal factors includes all those forces, which are inside the organisation and directly affect the activities and performance of organisation. External environmental forces combines all the factors which are outside the organisation and affect the business operations from its outer variable like, customers, suppliers, competitors, financial intermediaries, policies etc. Generally internal factors are controllable factors and an organisation has control over these factors and adjusts the situation as per its requirements. But external factors are uncontrollable and beyond the control of organisation. We can broadly classified these external factors into micro environmental factors and macro environmental factors.

The micro environment comprises of the resources, synergy and distinctive competences of a firm. These together determine its organizational capability in terms of its strengths and weaknesses existing in the different functional areas-marketing, operations, personnel, financial, technical etc.

The Macro environment consists of all those forces, those are beyond the control of the firm and the success of the firm will depend to a large extent on its adoptability to the environment. These macro level factors are social, economical, political, demographic, technological etc. we can explain about various components of micro and macro environment with help of following chart and explanation in details:

MICRO ENVIRONMENT

1. Suppliers: Suppliers ensure regular supply of inputs (raw materials and other components) to the company. In an organisation a managerial people of company wishes to obtain raw materials at lowest possible price. It is possible when our suppliers are reliable. A good working relationship with supplier can also help an organisation to serve their customers.
2. Competitors: A company or a business enterprise decides his future strategies as per competitive environment of business to overcome on their threats. The organisation should know about competitor’s planning in area of product, pricing, customer service, advertising, packing etc. The business organisation must have information about customers in order to provide customer satisfaction through better services.
3. Customers: Customer is a prime factor of any business environment. Customer’s feedback is essential to keep and maintain our regular customers and to attract new customers. According to Waterman Rober & Harper & Raw, “Customers are not homogeneous group, organization’s need to stay close to their customers to understand their needs and wants and how these change over time.” So that, monitoring of the customer’s behaviour is a pre-requisite for success of any business. There are different types of customers and business organisation is require to produce goods and services as per their requirements These customers are individual and household customers, commercial customers-whole sale and retail customers, Government bodies, foreign customers etc.
4. Marketing Intermediaries: Marketing intermediaries include services of transport, warehouses, C&F agents, merchandising agencies, marketing service agencies, advertising agencies and other financial intermediaries etc., to help the organisation for smooth selling and distribution of goods and services to customers. The business organisation must have an effective coordination among these marketing intermediaries for profit maximisation and intensive sales.
5. Government: Our government makes regulations or framework for business activities. A business must have to follow these regulation and decides all business activities in accordance of regulatory frame work. For example, high cost of licensing fee enforces to reduce new business activities.
6. Labour Unions: Labour unions can be great influences on the supply of labour-force. Labour Unions always resist to adoption of new machines against labour, wage reduction, labour retrenchment etc. to protect labour. So that the management always takes cooperative and negotiative steps with them for solving labour problems like wages, working hours, medical facilities etc.
7. Society: Customer is a part of society and society has different cultures, religions, traditions and systems. These elements have great influence on business activities. A marketers can’t ignore these facts and interest for ultimate satisfaction of group wants or desire.

MACRO ENVIRONMENT

(i) Economic Environment: The economic environment is made up of macro level factors related to the area of production and distribution of wealth that affect business of an organisation. An economic environment of a business depends upon some important factors listed as below:

(a) The economic structure that is adopted by a country as capitalistic, socialistic or mixed economy.

(b) Economic Strategy that exist at a given time in a country.

(c) Economic planning such as 5 years planning, Annual budget etc.

(d) Economic policies—Monetary, Industrial, Fiscal etc.

(e) Economic indicators such as per capita income, GDP, National income, rate of growth and growth of GNP, distribution of income, rate of saving, balance of payment etc.

Business managers are totally aware about all those factors which are directly affect their organisation and business.

(ii) Political-Legal Environment: Political environmental factors refer to the factors which are related to the management of public affairs and their impact on the business of an organisation. It is closely related to the economic system and economic policy.

In most countries, a number of laws regulate the conduct of a business. The Government of India has an all pervasive and restrictive influence over the various aspects of business in the country. For example, Govt. of India restricts the concentration of economic power through industrial licensing; MRTP act against monopolistic trade practices; the special privileges to the small scale sectors etc.

India is a democratic country with a stable political system. The elected government plays an effective role as a planner, promoter and regulator of economic activity of business.

(iii) Demographic Environment: Demographic factors includes size, growth, age composition, sex composition etc. of the population in the country. They also include family size, educational levels, language, religion, caste etc. The demand for goods and services is affected by demographic factors such as the size of population, population growth rate, age, sex composition, life expectancy, family size, employment pattern etc.

A rapidly increasing population, however, leads to growing demand for many products. A high population growth rate also indicates an enormous increase in the supply of labour. For example, the western countries faced the problem of labour shortage which encouraged the growth of labour saving technologies and automation. However, most developing countries are facing a population explosion and a situation of labour surplus. Therefore, labour intensive methods of production are encouraged by the governments of developing countries.

(iv) Technological Environment: Technology is considered to be one of the most important factors of any business environment. The technological environment comprises those factors related to applied knowledge and the materials and machines used in the production of goods and services. The way production function is organised; the way products are marketed; the way employees are hired and motivated; the way finance function is carried on; and the way managers and subordinates communicated with each other—all are influenced by technology.

A technology is the knowledge of new techniques or methods that improves our production and distribution of goods and services. It facilitates greater output, shorter working hours, development of skill in jobs, safer working conditions, efficient use of materials and labour, standard quality products etc.

There are some important factors and influences operating in the technological environment:

(a) Sources of technology, cost of acquisition of technology, collaboration in and transfer of technology.

(b) Technological development and research & development

(c) Impact of technology on human beings and the effect of techno-logy on environment.

(d) Communication etc.

(v) Socio-Cultural Environment: Every business operates within the norms of society and exists primarily to satisfy it needs. Social factors influence the policy and strategy of business, the organisation strives to satisfy the needs and wants of society. These factors are culture, values, tastes and preferences, social integration etc. Culture norms largely drive consumer needs and buyer behaviour. Knowledge of cultural environment is important to understand the business environment in its totality.

Cultural and social environmental awareness and analysis helps to pin point market opportunities. For example, the early failure of Kelloggs in India is due to its lack of understanding the Indian taste preference. Earlier, Kelloggs was positioning its product for entire family. But Indian ideally consists for breakfast of Idli-sambar, Dosa, Dal-roti, Sabji-Roti, Paratha etc. Cornflakes as breakfast is perceived more as a westernised taste. So, Kelloggs failed in India This has forced the company to now position their product for children as a source of complete nutrition and good health like “Kelloggs chocoes” in chocolate flavour specially for children.

It is therefore imperative to gather a deep understanding of cultural differences and grasp the intricacy of foreign market in this era of Globalization when even the geographical boundaries are crashing.

(vi) Ecological Environment: Ecology consists the study of nature, biotic factors—water, air, sunlight, soil, plants, animals and other micro organisms and their interactions with one another. Man is expected to preserve the ecological factors for achieving sustainable growth. Changing any biotic factors causes ecological imbalance.(Business and Business Environment Notes Study Material)

Industrial activities, automobiles, emission of fumes or smoke and effluents, and so on result in environmental degradation. Hence, Environmental protection and preservation must be the responsibility of every organization or individual. So that, pollution-free industrial activity is, considered to be a necessary of industrial organisation and big business houses. The government of India committed to the preservation of ecological balance through various legislation as below:

(a) The Water (Preservation and Control of Pollution) Act, 1974.

(b) The Air (Preservation and Control of Pollution) Act, 1981.

(c) The Environmental (protection) Act, 1986 etc.

(vii) International Environment: After economic reform, business are now compelled to come out of their domains and see beyond the physical boundaries of the country. There is a need for universal rule of business in global perspective. In new scenario the aim of business is to reduce the gap between domestic prices and world prices, and to lower the trade barriers-tariff, and liberalize the trade regime through adoption of Liberalization, Privatisation and Globalization for development of business. In pursuance of this broad objective, the World Trade Organisation (WTO), General Agreements on Trade in Services (GATS), the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) and the agreement on Trade-Related Investment Measures (TRIMs) have been brought as a universal rule of business.

The factors of micro and macro environment are illustrated by the help of Business Environment Model as given below:

IMPORTANCE OF THE STUDY OF BUSINESS ENVIRONMENT

The benefits of environmental study may be specified as below:

(i) This study helps the firm in the development of broad strategies and long-term policies of the firm.

(ii) To make aware about technological advancement.

(iii) This study should help the management in analysing the competitor’s strategies and planning.

(iv) It provides a rich source of idea and understanding about political changes taking place in environment.

(v) It helps to know about socio-economic changes at the nation and International level on the firm’s stability.

(vi) The study of environment should provide inputs for strategic decision making in respect of International Environment and prospective.

(vii) This study helps the firm in the development of long-term policies of the firm.

In favour of the importance of environmental analysis in modern prospective, Richman and Copen was said that, “Environmental factors or constraints are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. These are essentially the givers within which firms and their managements must operate in a specific country and they are very, often greatly, from country to country.”

BCom 1st Year Business and Business Environment Notes Study Material

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