Business Environment Unit – 1 (New Syllabus)

Concept of Business Environment

Business organisation has to interact and transact with its environment. Hence, both the business and environment are totally interrelated and mutually interdependent. Business environment refers to those aspects of the surroundings business enterprise, which affect or influence its operations and determine its effectiveness.

According to Keith Davis, “Business environment is the aggregate of all conditions, events and influence that surrounds and affect it”.

According to Andrews, “The environment of a company as the pattern of all external influences that affect its life and development”.

The business environment is always changing and is uncertain. It is because of dynamism of environment. As it is already said that the business environment is the sum of all the factors outside the control of management of a company, the factor, which are constantly changing, and they carry with them both opportunities and risks or uncertainties which can, make or mark the future of business.

Business environment encompasses all those factors that affect a company’s operations and includes customers, competitors, stakeholders, suppliers, industry trends, regulations other government activities, social and economic factors and technological developments. Thus, business environment refers to the external environment and includes all factors outside the firm, which lead to opportunities and threats of a firm.

Nature of Business Environment

The nature of business environment is as follows:

(1)  Complex: Business environment is compound in nature. Environment consists of a number of factors, events, conditions and influences arising from different sources which impact business thus making the business complex.

(2) Interdependence: The environment of the business is made of social, economic, legal, cultural, technological, and political factors. These factors of the environment are inter-dependable. The economic status of a country affects the development of technology. A rich country can make sufficient expenditure on the research and development.

(3) Dynamic: Business environment is constantly changing process. Business environment is dynamic as it keeps on changing in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. The various forces in the environment keep on changing from time to time thus making business dynamic and not static.

(4) Inter-relatedness: The different factors of business environment are co-related. For example, let us suppose that there is a change in the import-export policy with the coming of a new government. In this case, the coming of new government to power and change in the import-export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor.

(5) Impact: Business environment has both long term and short term impact. Environment therefore has different effects on different firms in the same industry, for example, drugs.

(6) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

(7) Relativity: It is a relative concept since it differs from country to country and region to region. Political conditions in the USA, for example differ from those in China or Pakistan. Similarly, demand for Sarees may be fairly high in India whereas it may be almost non-existent in France.

Significance of Business Environment

Some of the direct benefits of understanding the business environment are given below:

(1)  Customer Focus: Environmental understanding makes the management sensitive to the changing needs and expectations of consumers. For example: Hindustan Lever and several other FMCG companies launched small sachets of shampoo and other products realising the wishes of customers. This move helped the firms to increase sales.

(2) Strategy Formulation: Environmental monitoring provides relevant information about the business environment. Such information serves as the basis for strategy making. For example: ITC realised that there is a vast scope for growth in the travel and tourism industry in India and the government is keen to promote this industry because of its employment potential. With the help of this knowledge ITC planned new hotels both in India and abroad.

(3) Public Image: A business firm can improve its image by showing that it is sensitive to its environment and responsive to the aspirations of public. Leading firms like Reliance Industries, ICICI Bank and others have others have built good image by being sensitive and responsive to environmental forces. Environmental understanding enables business to be responsive to their environment.

(4) Continuous learning: Environmental analysis serves as broad based and ongoing education for business executives. It keeps them in touch with the changing scenario so that they are never are caught unaware. With the help of environmental learning managers can react in an appropriate manner and thereby increase the success of their organisations.

(5) Giving Direction for Growth: The interaction with the environment leads opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(6) Change Agent: Business leaders act as agents of change. They create a drive for change at the grass root level. In order to decide the direction and nature of change, the leaders needs to understand the aspirations of people and other environmental forces through environmental scanning. For example: contemporary environment requires prompt decision-making and power to people. Therefore, business leaders are increasingly delegating authority to empower their staff and to eliminate procedural delays.

Types of Business Environment

External Micro- Environment:

Micro environment includes those players whose decisions and actions have a direct impact on the company. Production and selling of commodities are the two important aspects of modern business. Accordingly, the micro environment of business can be divided. The various constituents of micro environment are as under:

(1)  Suppliers of inputs: An important factor in the external micro environment of a firm is the supplier of its inputs such as raw materials and components. Normally, most firms do not depend on a single supplier of inputs. To reduce risk and uncertainty business firms prefer to keep multiple suppliers of inputs.

(2) Customers: The people who buy and use a firm’s product and services are an important part of external micro environment. Since sales of a product or service is critical for a firm’s survival and growth, it is necessary to keep the customers satisfied. A concern for customers’ satisfaction is essential for the success of a business firms. Besides, a business firm has to compete with rival firms to attract customers and thereby increase the demand and market for its product.

(3) Marketing intermediaries: In the firm’s external micro environment, marketing intermediaries play an essential role of selling and distributing its products to the final customers. Marketing provides an important link between a business firm and its ultimate customers.

(4) Competitors: Different firms in an industry compete with each other for sale of their products. This competition may be on the basis of pricing of their products and also non- price competition through competitive advertising such as sponsoring some events to promote the sale of different varieties and models of their products. As a consequence of liberalisation and globalisation of the Indian economy since the adoption of economic reforms there has been a significant increase in the competitive environment of business firms. Now, Indian firms have to compete not only with each other but also with foreign firms whose products can be imported. In America, American firms faced a lot of competition from the Japanese firms producing electronic goods and automobiles.

(5) Publics: Finally, publics are an important force in external micro environment. Environmentalists, media groups, women’s associations, consumer protection groups, local groups, Citizens Association are some important examples of publics which have an important bearing on the business decisions of the firm. The existence of various types of publics influences the working of business firms and compels them to be socially responsible.

External Macro Environment:

Apart from micro environment, business firms face large external environmental forces. An important fact about external macro environmental forces is that they are uncontrollable by the management. Because of the uncontrollable nature of macro forces a firm has to adjust or adapt it to these external forces. These factors are:

(1)  Economic Environment: Economic environment includes all those forces which have an economic impact on business. Accordingly, total economic environment consists of agriculture, industrial production, infrastructure, planning, basic economic philosophy, stages of economic development, trade cycles, national income, per capita income, savings, money supply, price level and population. Business and economic environment is closely related. Business usually collect all its required inputs from the economic environment available and also absorbs the output of business units.

(2) Political-legal Environment: Business firms are closely related to the government. The political- legal environment includes the activities of three political institutions, namely, legislature, executive and judiciary which usually play a useful role in shaping, directing, developing and controlling business activities. The legislature takes decisions on a particular course of action, the executive implements those decisions through government agencies and the judiciary serves as a watch-dog for ensuring public interest in all the activities of legislature and executive. In order to attain a meaningful business growth, a stable and dynamic political-legal environment is very important.

(3) Technological Environment: Technological environment is exercising considerable influence on business. Technology implies systematic application of scientific or other organised knowledge to practical tasks or activities. Business makes it possible for technology to reach the people in proper format. As technology is changing fast, businessmen should keep a close look on those technological changes for its adaptation in their business activities.

(4) Global or International Environment: Global environment plays an important role in shaping business activity. With the liberalisation and globalisation of the economy, business environment of an economy has become totally different wherein it has to bear all shocks and benefits arising out of global environment.

(5) Socio-cultural Environment: Social and cultural environment also influences the business environment indirectly. These includes people’s attitude to work and wealth, ethical issues, role of family, marriage, religion and education and also social responsiveness of business. The social and cultural environment also influences the demand for a variety of goods and the type of employees the industry require. Moreover, the obligation of business to society also depends on the cultural milieu in which the firm is operating.

(6) Demographic Environment: The demographic environment includes the size and growth of population, life expectancy of the people, rural-urban distribution of population, the technological skills and educational levels of labour force. All these demographic features have an important bearing on the functioning of business firms. The labour force in the country is always changing. This will cause changes in the work force of a firm. The business firms have to adjust to the requirement of their employees. They have to provide child care services, labour welfare programmes etc. The demographic environment affects both the supply and demand sides of business organisations. The technological and educational skills of the workers of a firm are determined by the human resources available in the economy which are part of the demographic environment. The size of the population and its rural- urban distribution determine the demand for the products of industrial firms. The growth rate and the age composition of the population determine the demand pattern of goods. If the child population is high then the demand for baby foods and baby clothes will be high. On the other hand, if the life expectancy of the people is high then the demand for goods will be those that will cater to the tastes and needs of elderly people. The demographic environment is also important for business firms as it determines the choice of technology by them.

(7) Natural Environment: Natural environment influences business in diverse ways. Business in modern times is dictated by nature. The natural environment is the ultimate source of many inputs such as raw materials and energy, which firms use in their productive activity. In fact, the availability of natural resources in the region or country is the basic factor in determining business activity in it. The natural environment which includes geographical and ecological factors such as minerals and oil reserves, water and forest resources, weather and climatic conditions are all highly significant for various business activities. For example, steel producing industries are set up near the coalmines to save cost of transporting coal to distant locations. The natural environment also affects the demand for goods. For example, in places where temperatures are high, the demand for coolers and air conditioners are high. Similarly, weather and climatic conditions influence the demand pattern for clothing, building materials for housing etc. Natural calamities like floods, droughts, earthquake etc. are devastating for business activities.

(8) Ecological Environment: Due to the efforts of environmentalists and international organisations such as the World Bank the people have now become conscious of the adverse effects of depletion of exhaustible natural resources and pollution of environment by business activity. Accordingly, laws have been passed for conservation of natural resources and prevention of environment pollution. These laws have imposed additional responsibilities and costs for business firms. But it is socially desirable that these costs are borne by business firms if we want sustainable economic growth and also healthy environment for human beings.

Internal Environment:

The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, the firm may not be able to change all the factors.

The various internal factors are:

(1)  Value system: The value system of an organisation means the ethical beliefs that guide the organisation in achieving its mission and objectives. It is a widely acknowledged fact that the extent to which the value system is shared by all in the organisation is an important factor contributing to its success.

(2) Mission and objectives: The business domain of the company, direction of development, business philosophy, business policy etc are guided by the mission and objectives of the company. The objective of all firms is assumed to be maximisation of profit. Mission is defined as the overall purpose or reason for its existence which guides and influences its business decision and economic activities.

(3) Organisation structure: The organisational structure, the composition of the board of directors, the professionalism of management etc are important factors influencing business decisions. The nature of the organisational structure has a significant influence over the decision making process in an organisation. An efficient working of a business organisation requires that the organisation structure should be conducive for quick decision-making.

(4) Corporate culture: Corporate culture is an important factor for determining the internal environment of any company. In a closed and threatening type of corporate culture the business decisions are taken by top level managers while the middle level and lower level managers have no say in business decision-making. This leads to lack of trust and confidence among subordinate officials of the company and secrecy pervades throughout the organisation. This results in a sense of alienation among the lower level managers and workers of the company. In an open and participating culture, business decisions are taken by the lower level managers and top management has a high degree of confidence in the subordinates. In this type of culture, participation of workers in managerial tasks is encouraged. Development of work culture and the growing involvement of the workers or employees in company affairs and the sympathetic attitude of the management towards its employees are all equally responsible for maintaining a healthy internal environment in the business.

(5) Quality of human resources: Quality of employees that is of human resources of a firm is an important factor of internal environment of a firm. The characteristics of the human resources like skill, quality, capabilities, attitude and commitment of its employees etc could contribute to the strength and weaknesses of an organisation. Some organisations find it difficult to carry out restructuring or modernisation plans because of resistance by its employees. Due to the importance of human resources for the success of the company, now-a-days there are special courses for managers so as to be able to select and manage efficiently the human resources of a company.

(6) Labour unions: Labour unions collectively bargains with the managers for better wages and better working conditions of the different categories of workers. For the smooth working of a business firm good relations between management and labour unions is required.

(7) Physical resources and technological capabilities: Physical resources such as, plant and equipment and technological capabilities of a firm determine its competitive strength which is an important factor for determining its efficiency and unit cost of production. Research and development capabilities of a company determine its ability to introduce innovations which enhances productivity of workers. It is, however, important to note that the rapid technological growth and the growth of information technology in recent years have increased the relative importance of intellectual capital and human resources as compared to physical resources of a company. The growth of Bill Gates’ Microsoft Company and Murthy’s Infosys technologies is mostly due to the quality of human resources and intellectual capital than to any superior physical resources.

Characteristics of Business

(1)    Economic Activity Business is considered to be an economic activity because it is undertaken with the aim of earning money or livelihood and not because of any sentimental reason like love, affection or sympathy.

(2)   Production or Procurement of Goods and Services: Goods are offered to consumers after they are either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods it deals in or it acquires them from other producers, to be further sold to consumers or users. Goods may be consumer goods like television, tea, pen, etc or capital goods like machinery, furniture, etc Services may include facilities offered to consumers in the form of transportation, banking, electricity, etc.

(3)   Sale or Exchange of Goods and Services: Business involves transfer or exchange of goods and services for value addition. If goods are produced for self consumption and not for selling purpose, it cannot be called a business activity Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business. Thus, one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer.

(4)   Regular Dealings in Goods and Services: Business involves dealings in goods or services on a regular basis. Therefore, one single transaction of sale or purchase does not constitute business. e.g., if a person sells his/her old washing machine even at a profit, it will not be considered a business activity. But if he/she sells washing machines regularly it will be termed as a business.

(5)   Profit Earning: One of the main objectives of business is to earn profit. No business can survive for long without earning profit. It is a source of income for business persons and a source of finance for meeting expansion requirements of business. Hence, businessmen make all possible efforts to maximize profits, by increasing the sales revenue or reducing costs.

Scope of Business – Components of Business

Industry:

The word “Industry” refers to that part of business activities which is apprehensive with the extraction, production or fabrication of products. The products which are raised, produced or processed by an industry may either be used by the ultimate consumer or by another concern for further production. If the goods produced by an industry are consumed by the final customers, these are named as ‘consumer’s goods’ e.g. clothes. If the goods are used for further production of wealth they are called producer’s or capital goods. In case the goods produced by an industry are further processed into finished products by another concern they are called as intermediate goods. i.e. Plastic.

Types of Industry:

On the basis activity industry is further classified into various types are as under:-

(1)    Extractive Industries: Extractive industries are those industries which extract, raise or fabricate raw materials from above or beneath surface of the earth. i.e. Mining, fisheries forestry, agriculture.

(2)   Genetic Industries: Those industries which are engaged in reproducing and multiplying certain species of animals and plants and selling them in the market for profit are named as genetic industries. i.e. Cattle breeding farms, poultry farms, plant nurseries.

(3)   Constructive Industries: Constructive industries as the name signifies are engaged in the construction of building, canals, brides, dams, roads etc.

(4)   Manufacturing Industries: Manufacturing industries are those which are concerned of converting raw material or semi finished products into finished products. E.g. Shoes Company, Textiles Mills.

(5)   Service Industries: Service industries are usually engaged in the manufacturing of intangible goods which cannot be seen or touched by naked eye. The service of professionals such as doctors, lawyers is examples of service industries.

Commerce:

The second element that comes in the scope of business is Commerce. It is a very important component of business and is concerned with the buying and selling of goods. It includes all the activities which are connected to the transfer of goods from the place of production to the ultimate consumers. The whole ranges of commerce activities are classified are as under:-

Trade:

The process of buying and selling of goods is called Trade. It is the exchange of goods and services among buyers and sellers in which both the parties are benefited. Trade is classified into two types.

Internal Trade: The process of buying and selling of goods within the edge of a country is called internal trade.

(1)    Wholesale Trade. The process of purchase of goods in huge quantity from producers and their resale to retailers is known as wholesale trade. The retailer then further sells these goods to the final consumers.

(2)   Retail Trade. The retailer sale the goods and services to the ultimate consumers is known as Retail Trade.

External Trade: The purchase and sale of goods between two countries are called external trade. It is also called foreign trade. There are two types of external Trade.

(1)    Import Trade

(2)   Export Trade

Aid to Trade:

The activities which help in the purchase of goods and services are called aids to trade. The aids which are compulsory for the development of the trade are as follows:-

(1)    Transport: The different ways of transport help in carrying goods from the places of production to centers of utilization e.g. Railways, ships, airlines etc.

(2)   Insurance: Insurance is very essential aid to trade. The risk of damage of goods due to fire, flood, earthquake or other causes us covered by insurance.

(3)   Warehousing: Warehousing is a kind of storeroom. Nowadays most of the goods are produce in anticipation of demand. They are stored in safe places and are released as and when demanded in the market. Warehousing thus helps in overcoming the barrier of time and creates time utility.

(4)   Banking: The commercial banks play a vital role in financing the different trade activities. They are funding the traders for stock holding and transportation of goods. They also support the buyers and sellers of goods in receiving and making payments, both at the national and worldwide level. The credit facility in the form of cash credit, overdrafts and loans is provided to the traders.

(5)   Advertisement: Selling of goods is the most difficult problem for the producer. Advertisement regarding the product through newspapers, magazines, radio and television has greatly helped the consumers in choosing the goods of their taste. So advertisements play a vital role in increasing sale of goods.

Porter’s five Forces Model of Competition

Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization’s strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces:

(1)             Threat of new potential entrants

(2)            Threat of substitute product/services

(3)            Bargaining power of suppliers

(4)            Bargaining power of buyers

(5)            Rivalry among current competitors

The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.

Let’s discuss the five factors of Porter’s model in detail:

(1)             Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are-

§       Economies of scale

§       Brand loyalty

§       Government Regulation

§       Customer Switching Costs

§       Absolute Cost Advantage

§       Ease in distribution

§       Strong Capital base

(2)            Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors:

§                     Extent of exit barriers

§                     Amount of fixed cost

§                     Competitive structure of industry

§                     Presence of global customers

§                     Absence of switching costs

§                     Growth Rate of industry

§                     Demand conditions

(3)            Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.

(4)            Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs(labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.

(5)            Threat of Substitute products: Substitute products refer to the products having ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).

Environmental Analysis & Its objectives

Environmental analysis is the process of evaluating the external factors that can affect an organization. It is also known as external analysis, industry analysis, or macro environmental analysis. The objective of environmental analysis is to identify opportunities and threats that may impact the organization, as well as to understand the industry and market conditions in which the organization operates.

The objectives of environmental analysis include:

(1)             Identifying external factors that may affect the organization: This includes analyzing the political, economic, social, technological, legal, and environmental factors that can impact the organization.

(2)            Understanding the industry and market conditions: This includes analyzing the trends, patterns, and forces that shape the industry and market in which the organization operates.

(3)            Identifying opportunities and threats: Environmental analysis helps organizations identify new opportunities for growth and expansion, as well as potential threats that may impact the organization’s performance.

(4)            Developing strategies: Environmental analysis can be used to develop strategies that take into account the external factors and conditions that may impact the organization.

(5)            Improving decision-making: Environmental analysis can provide valuable information to help organizations make better decisions about future actions and investments.

Process of Business Environment Analysis

(1)             SCANNING

(2)            MONITORING

(3)            FORECASTING

(4)            ASSESSING

(1)             SCANNING: It is the process of analyzing the environment. Identification of emerging/ensuing trends is a critical purpose of environmental scanning. The main aim of environmental scanning is alerting the organization to potentially significant external impingement before it has fully formed or crystallized.

Successful environmental scanning draws attention to possible changes and events before their occurrence, allowing time for suitable action.

(2)            MONITORING: It entails perspective follow-up and a more in-depth analysis of the relevant environmental trends identified at the scanning stage. The purpose of monitoring is to assemble sufficient data to discern (make out) whether certain patterns are emerging.

The outputs of monitoring are threefold:

(i)             A specific description of environmental patterns to be forecast;

(ii)            Identification of trends for further monitoring;

(iii)          Identification of patterns requiring further scanning.

(3)            FORECASTING: Forecasting is concerned with the development of plausible directions of directions, scope, speed and intensity of environmental change to layout the evolutionary path of anticipatory change.

(4)            ASSESSMENT: Assessment involves drawing up implications/ possible impacts. In assessment, the frame of reference moves from understanding the environment –of the focus of Scanning, Monitoring and Forecasting-to indentifying what that understanding of environment means for the organization.

In short, it involves drawing of possible impacts of the environmental changes on the organization.

Environmental analysis is required due to its needs and importance for the following reasons:

(i)    Environmental factors are primary impact makers on corporate strategy of organisations.

(ii)   Such analysis helps in anticipating opportunities and to plan alternative responses to those opportunities.

(iii) It helps in determining threats and developing an early warning system to prevent threats to the organisation or to determine the risks that may be faced by organisation in its future operations.

(iv) It helps to identify those adjustments or adaptations, which are required for greater accomplishment of organizational objectives.

(v)   It is sort of SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis which helps in deciding about the rights course of action for managerial to successfully negotiate with the prevalent circumstances around the organisation in order to ensure its survival, growth and development.

(vi) Environmental information strengthens the planning process and strategy formulation.

Benefits of Environmental Analysis

There are several benefits to conducting environmental analysis, including:

(1)             Identifying opportunities and threats: Environmental analysis can help organizations identify new opportunities for growth and expansion, as well as potential threats that may impact the organization’s performance. This information can be used to develop strategies that take advantage of opportunities and mitigate risks.

(2)            Improving decision-making: Environmental analysis can provide valuable information to help organizations make better decisions about future actions and investments. It can be used to assess the potential impact of different courses of action and to identify potential areas of risk.

(3)            Developing strategies: Environmental analysis can be used to develop strategies that take into account the external factors and conditions that may impact the organization. This can help organizations identify new markets or products, as well as ways to improve their existing operations.

(4)            Enhancing competitiveness: Environmental analysis can help organizations stay competitive by identifying trends, patterns, and forces that are shaping the industry and market in which they operate. This can help organizations anticipate changes and adapt to them more quickly.

(5)            Improving performance: Environmental analysis can provide information that can be used to improve the organization’s performance. This can include identifying ways to reduce costs, improve efficiency, and increase productivity.

(6)            Improving stakeholder relationship: By understanding the broader context and external factors that affect the organization, environmental analysis can help organizations better understand and anticipate the needs of stakeholders, and develop strategies to better meet those needs.

(7)            Managing Risk: Environmental analysis can help organizations identify potential risks and hazards, and develop strategies to manage them. This can include identifying ways to minimize the impact of natural disasters, economic downturns, or other external factors that could have a negative impact on the organization.

(8)            Compliance: Environmental analysis can help organizations stay compliant with laws and regulations. By understanding the legal and regulatory environment in which they operate, organizations can ensure that their operations and activities comply with relevant laws and regulations, and avoid potential penalties or legal issues.

Techniques of Environmental Analysis

Techniques of Environmental Analysis

(1)             PEST ANALYSIS

(2)            PESTEL MODEL

(3)            SWOT ANALYSIS

(4)            PORTER’S FIVE FORCES MODEL

(5)            GLOBAL COMPETITIVENESS INDEX

(1)             PEST Analysis: PEST analysis is a framework used to evaluate the external factors that can impact an organization. PEST stands for Political, Economic, Social, and Technological factors. This analysis helps organizations understand the external environment in which they operate, and identify opportunities and threats that may impact their performance.

(2)            PESTEL Model: PESTEL model is an extension of PEST analysis, which includes additional elements, namely Environmental and Legal factors. This model helps organizations to understand the broader external environment and identify opportunities and threats that may impact their performance.

(3)            SWOT Analysis: SWOT analysis is a framework that helps organizations understand their internal strengths and weaknesses, as well as external opportunities and threats. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This analysis helps organizations identify areas where they are strong and areas where they need to improve, as well as opportunities and threats that may impact their performance.

(4)            Porter’s Five Forces Model: Porter’s Five Forces Model is a framework used to analyze the competitive environment of an industry. It helps organizations understand the forces that shape competition in an industry, including the threat of new entrants, the bargaining power of suppliers and buyers, the threat of substitute products or services, and the intensity of competitive rivalry.

(5)            Global Competitiveness Index: The Global Competitiveness Index (GCI) is a measure of the competitiveness of countries and economies. It is published by the World Economic Forum and ranks countries based on a variety of factors, including institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, and technological readiness.

PEST analysis

PEST analysis is a framework used to evaluate the external factors that can impact an organization. PEST stands for Political, Economic, Social, and Technological factors. This analysis helps organizations understand the external environment in which they operate, and identify opportunities and threats that may impact their performance.

The PEST analysis process typically involves the following steps:

(1)    Political: This includes analyzing factors such as government stability, political policies, regulations, and laws that may impact the organization.

(2)   Economic: This includes analyzing factors such as economic growth, inflation, interest rates, and exchange rates that may impact the organization.

(3)   Social: This includes analyzing factors such as demographics, cultural trends, and consumer attitudes that may impact the organization.

(4)   Technological: This includes analyzing factors such as technological advances, R&D, and innovations that may impact the organization.

Advantages of PEST analysis include:

(i)    it is simple and easy to understand

(ii)   it provides a broad overview of the external environment

(iii) it helps organizations identify opportunities and threats that may impact their performance

(iv) it can be used to develop strategies that take into account the external factors and conditions that may impact the organization

Disadvantages of PEST analysis include:

(i)    it is a static analysis and doesn’t take into account the dynamic nature of the external environment

(ii)   it can be subject to interpretation and bias

(iii) it may not provide detailed information on specific industry or market conditions

(iv) it may not be relevant to all organizations or industries

Overall, PEST analysis is a useful tool for understanding the external environment in which an organization operates, but it should be used in conjunction with other analytical tools and techniques to provide a more comprehensive understanding of the organization’s external environment.

PESTEL Model

The PESTEL model is an extension of the PEST analysis, which includes additional elements, namely Environmental and Legal factors. This model helps organizations to understand the broader external environment and identify opportunities and threats that may impact their performance.

The PESTEL model process typically involves the following steps:

(1)    Political: This includes analyzing factors such as government stability, political policies, regulations, and laws that may impact the organization.

(2)   Economic: This includes analyzing factors such as economic growth, inflation, interest rates, and exchange rates that may impact the organization.

(3)   Social: This includes analyzing factors such as demographics, cultural trends, and consumer attitudes that may impact the organization.

(4)   Technological: This includes analyzing factors such as technological advances, R&D, and innovations that may impact the organization.

(5)   Environmental: This includes analyzing factors such as environmental regulations, climate change, and natural resources that may impact the organization.

(6)   Legal: This includes analyzing factors such as laws, regulations, and legal issues that may impact the organization.

Advantages of PESTEL model include:

(i)    it provides a comprehensive overview of the external environment

(ii)   it helps organizations identify opportunities and threats that may impact their performance

(iii) it can be used to develop strategies that take into account the external factors and conditions that may impact the organization

(iv) it helps organizations identify potential risks and hazards, and develop strategies to manage them

(v)   it can help organizations stay compliant with laws and regulations

Disadvantages of PESTEL model include:

(i)    It can be time-consuming and resource-intensive to conduct a PESTEL analysis

(ii)   It can be subject to interpretation and bias

(iii) It may not be relevant to all organizations or industries

Overall, PESTEL model is a useful tool for understanding the external environment in which an organization operates, it is more comprehensive than PEST analysis and can help organizations identify a wider range of opportunities and threats, but it should be used in conjunction with other analytical tools and techniques to provide a more comprehensive understanding of the organization’s external environment.

SWOT Analysis

SWOT analysis is a framework that helps organizations understand their internal strengths and weaknesses, as well as external opportunities and threats. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This analysis helps organizations identify areas where they are strong and areas where they need to improve, as well as opportunities and threats that may impact their performance.

The SWOT analysis process typically involves the following steps:

(1)    Identifying strengths: This includes identifying the internal factors that give the organization an advantage over its competitors.

(2)   Identifying weaknesses: This includes identifying the internal factors that put the organization at a disadvantage compared to its competitors.

(3)   Identifying opportunities: This includes identifying external factors that the organization can take advantage of to improve its performance.

(4)   Identifying threats: This includes identifying external factors that may negatively impact the organization’s performance.

Advantages of SWOT analysis include:

(i)    it is simple and easy to understand

(ii)   it provides a clear overview of the organization’s internal and external environment

(iii) it helps organizations identify areas where they are strong and areas where they need to improve

(iv) it can be used to develop strategies that take into account the internal and external factors that may impact the organization

Disadvantages of SWOT analysis include:

(i)    it is a static analysis and doesn’t take into account the dynamic nature of the internal and external environment

(ii)   it can be subject to interpretation and bias

(iii) it may not provide detailed information on specific industry or market conditions

(iv) it may not be relevant to all organizations or industries

Overall, SWOT analysis is a useful tool for understanding the organization’s internal and external environment, but it should be used in conjunction with other analytical tools and techniques to provide a more comprehensive understanding of the organization’s internal and external environment.

Porter’s five forces model

Porter’s Five Forces Model is a framework used to analyze the competitive environment of an industry. It helps organizations understand the forces that shape competition in an industry, including:

(1)    The threat of new entrants: the potential for new competitors to enter the market and increase competition.

(2)   The bargaining power of suppliers: the ability of suppliers to increase prices or decrease quality of the inputs.

(3)   The bargaining power of buyers: the ability of customers to negotiate lower prices or better quality from the firms in the industry.

(4)   The threat of substitute products or services: the potential for consumers to switch to other products or services that can perform the same function.

(5)   The intensity of competitive rivalry: the level of competition among existing firms in the industry.

Advantages of Porter’s Five Forces Model include:

(i)    it provides a comprehensive overview of the competitive environment of an industry

(ii)   it helps organizations understand the forces that shape competition in an industry

(iii) it can be used to identify areas where competition is high and areas where competition is low

(iv) it can be used to identify potential threats and opportunities in an industry

Disadvantages of Porter’s Five Forces Model include:

(i)    It may not be relevant to all industries or organizations

(ii)   It may not take into account the changes in the external environment

(iii) It can be subject to interpretation and bias

(iv) It may not provide detailed information on specific industry or market conditions

Overall, Porter’s Five Forces Model is a useful tool for understanding the competitive environment of an industry, but it should be used in conjunction with other analytical tools and techniques to provide a more comprehensive understanding of the industry’s competitive environment.

Global Competitiveness Index (GCI)

The Global Competitiveness Index (GCI) is a measure of the competitiveness of countries and economies. It is published by the World Economic Forum and ranks countries based on a variety of factors, including institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, and technological readiness.

Advantages of the GCI include:

(i)    it provides a comprehensive overview of the competitiveness of countries and economies

(ii)   it can be used to compare the competitiveness of different countries and economies

(iii) it can be used to identify areas where a country or economy is strong and areas where it needs to improve

(iv) it can be used to identify potential opportunities and threats for a country or economy

Disadvantages of the GCI include:

(i)    it is based on a specific set of indicators and may not take into account all relevant factors

(ii)   it may not be relevant to all countries or economies

(iii) it can be subject to interpretation and bias

(iv) it may not provide detailed information on specific industries or markets

Overall, the GCI is a useful tool for understanding the competitiveness of countries and economies, but it should be used in conjunction with other analytical tools and techniques to provide a more comprehensive understanding of a country or economy’s competitiveness.

Advantages of environmental analysis

(1)    Identifying external factors that may affect the organization: Environmental analysis can help organizations identify political, economic, social, technological, legal, and environmental factors that can impact the organization, allowing them to better anticipate and respond to changes in the external environment.

(2)   Understanding the industry and market conditions: Environmental analysis helps organizations understand the trends, patterns, and forces that shape the industry and market in which they operate, allowing them to anticipate changes and adapt to them more quickly.

(3)   Identifying opportunities and threats: Environmental analysis can help organizations identify new opportunities for growth and expansion, as well as potential threats that may impact their performance, allowing them to take advantage of opportunities and mitigate risks.

(4)   Developing strategies: Environmental analysis can be used to develop strategies that take into account the external factors and conditions that may impact the organization, allowing them to make better decisions about future actions and investments.

(5)   Improving decision-making: Environmental analysis can provide valuable information to help organizations make better decisions about future actions and investments.

(6)   Enhancing competitiveness: Environmental analysis can help organizations stay competitive by identifying trends, patterns, and forces that are shaping the industry and market in which they operate.

(7)   Improving performance: Environmental analysis can provide information that can be used to improve the organization’s performance, including reducing costs, improving efficiency, and increasing productivity.

(8)   Improving stakeholder relationship: Environmental analysis can help organizations better understand and anticipate the needs of stakeholders, and develop strategies to better meet those needs.

Disadvantages of environmental analysis

(1)    It can be time-consuming and resource-intensive to conduct an environmental analysis. The process may require a significant investment of time and resources to gather and analyze the necessary data and information.

(2)   It can be subject to interpretation and bias. The interpretation of the data and information gathered during the analysis may be influenced by the personal biases and perspectives of the individuals conducting the analysis.

(3)   It may not provide detailed information on specific industry or market conditions. While environmental analysis can provide a broad overview of external factors, it may not provide detailed information on specific market or industry conditions.

(4)   It may not be relevant to all organizations or industries. The external factors that are relevant to one organization or industry may not be relevant to another, making environmental analysis less useful for certain organizations or industries.

(5)   It is a static analysis and doesn’t take into account the dynamic nature of the external environment. Environmental analysis is typically conducted at a specific point in time and may not take into account changes that occur after the analysis is completed.

(6)   It may not be able to predict all the possible future events and their effects. Environmental analysis can help organizations identify potential opportunities and threats, but it may not be able to predict all possible future events and their effects.

(7)   It may not be able to provide a complete picture of the external environment, leading to a lack of understanding of some factors. Environmental analysis can be limited by the availability and quality of data and information, which may not fully capture the complexity of the external environment.

(8)   It may not be able to capture the inter-relationship between different factors and how they impact the organization. Environmental analysis tends to focus on individual factors rather than how they interact and influence each other.

Economic growth & Economic Development

Economic growth refers to an increase in a country or region’s economic output, measured by gross domestic product (GDP) or gross national product (GNP). It is usually measured in terms of the percentage increase in GDP or GNP over a specific period of time. Economic growth is often seen as a key indicator of a country or region’s overall economic health and well-being.

Economic development, on the other hand, is a broader concept that encompasses not only economic growth but also other aspects of economic and social well-being. Economic development includes factors such as improvements in living standards, education, healthcare, and infrastructure, as well as reductions in poverty and unemployment. Economic development also includes factors such as income distribution and the overall quality of life.

Economic growth and economic development are related, but they are not the same thing. Economic growth can lead to economic development, but it is not a guarantee. A country or region can experience economic growth without experiencing economic development if the growth is not inclusive or if the benefits of growth are not distributed equitably.

Economic development encompasses several aspects, including:

(1)    Income: Economic development is measured by the increase in per capita income, which reflects the overall standard of living of the population

(2)   Employment: Economic development is measured by the increase in employment opportunities and the reduction of unemployment.

(3)   Infrastructure: Economic development is measured by the improvement of basic infrastructure such as roads, electricity, water supply, and communication networks.

(4)   Human capital: Economic development is measured by the improvement of the education and health of the population.

(5)   Quality of life: Economic development is measured by the overall well-being of the population, which includes factors such as life expectancy, infant mortality, and access to healthcare.

(6)   Income distribution: Economic development is measured by the reduction of income inequality and the increase in the standard of living of the poorest segments of the population.

Economic growth and economic development are important concepts that are closely related, but they are not the same thing. Economic growth is an important goal, but it is not the only goal. Economic development encompasses a broader set of goals and outcomes that include improvements in overall well-being, income distribution, and the overall quality of life.

Difference between Economic growth and Economic development

Economic growth and economic development are related but distinct concepts that are often discussed on different bases.

(1)    Quantity vs. Quality: Economic growth is often measured in terms of an increase in a country or region’s economic output, such as GDP or GNP, while economic development is measured in terms of the overall well-being of the population and the improvement of various socio-economic indicators.

(2)   Short-term vs Long-term: Economic growth is often viewed as a short-term goal, focused on increasing economic output in the immediate future, while economic development is a long-term goal, focused on sustainable improvements in the overall well-being of the population over time.

(3)   Inclusive vs Exclusive: Economic growth can be inclusive, benefiting all members of society, or exclusive, benefiting only certain segments of society. Economic development, on the other hand, is often focused on inclusive growth and reducing inequality.

(4)   Economic vs Social development: Economic growth is focused on increasing economic output, while economic development is focused on improving the overall well-being of the population and includes factors such as employment, infrastructure, education, healthcare, and quality of life.

(5)   Market-driven vs Government-led: Economic growth is often driven by market forces and the private sector, while economic development is often led by government policies and programs designed to improve the overall well-being of the population.

(6)   Sectoral Development: Economic growth is often measured by the increase in output in a specific sector, while economic development is focused on overall development in all sectors of the economy.

(7)   Local and Global: Economic growth is often measured at the local level, for example, a country or region, while economic development is measured at both local and global level.

In conclusion, economic growth and economic development are related, but they are not the same thing. Economic growth is an important goal, but it is not the only goal. Economic development encompasses a broader set of goals and outcomes that include improvements in overall well-being, income distribution, and the overall quality of life.

Features of Indian Economy

(1)    Mixed economy: India has a mixed economy which combines elements of both capitalism and socialism. The government plays a significant role in the economy, with public sector enterprises and government regulations alongside private sector businesses and market-driven forces.

(2)   Agriculture-based: Agriculture is a significant contributor to India’s economy, providing employment and income for a large proportion of the population. India is one of the world’s leading producers of agricultural products such as rice, wheat, sugarcane, and cotton.

(3)   Service sector-driven: India’s service sector has been growing rapidly in recent years, and it now accounts for a large proportion of the country’s GDP. The service sector includes industries such as finance, IT, and tourism.

(4)   Large population: India has a large population, which is both an opportunity and a challenge for the country’s economy. On one hand, a large population provides a large pool of labor and consumers, but on the other hand, it also puts pressure on resources and infrastructure.

(5)   Developing country: India is considered a developing country and is working towards improving its infrastructure, education and healthcare systems, and reducing poverty and inequality.

(6)   Rapid urbanization: India is experiencing rapid urbanization, with a large number of people moving from rural areas to urban centers in search of better job and income opportunities.

(7)   High rate of inflation: India has a relatively high rate of inflation, which can be a challenge for the country’s economy as it can lead to higher costs for consumers and businesses.

(8)   Growing middle class: India has a growing middle class which is becoming an increasingly important consumer market.

(9)   Large youth population: India has a large youth population, which represents both an opportunity and a challenge for the country’s economy. On one hand, a large youth population provides a large pool of labor and consumers, but on the other hand, it also puts pressure on education and job opportunities.

(10)         High dependence on exports: India has a high dependence on exports, particularly in sectors such as IT and pharmaceuticals. This can make the country’s economy vulnerable to changes in global demand and economic conditions.

(11)  High foreign debt: India has a high level of foreign debt, which can be a challenge for the country’s economy as it can lead to higher borrowing costs and increased risk of default.

(12) Limited natural resources: India has limited natural resources, particularly in comparison to other large economies. This can make the country’s economy more dependent on imports of raw materials and energy. This also makes the country more vulnerable to fluctuations in global resource prices.