HU401

Impact of Economic
Environment on Business
Assignment 1
Megha Kaihnsa
BE071310
E&Ec
BUSINESS ENVIRONMENT
Business, now-a-days is vitally affected by the economic, social, legal, technological and political factors.
These factors collectively form business environment. Business environment, as such, is the total of all
external forces, which affect the organisation and operations of business. The environment of an
organisation has got internal, operational and general lives managers must be aware of these three
environmental levels and their relationship and importance.

The term 'business environment implies those external forces, factors and institutions that are beyond
the control of individual business organisations and their management and affect the business
enterprise. It implies all external forces within which a business enterprise operates. Business
environment influence the functioning of the business system. Thus, business environment may be
defined as all those conditions and forces which are external to the business and are beyond the
individual business unit, but it operates within it. These forces are customer, creditors, competitors,
government, socio-cultural organisations, political parties national and international organisations etc.
some of those forces affect the business directly which some others have indirect effect on the business.

Business environment as such are classified into the following three major categories, they are:

 Internal environment

 Operational environment

 General/external environment

Both internal and operational environment are the creation of the enterprise itself. The factors of
external or general environment are broad in scope and least controlled and influenced by the
management of the enterprises.

Now we discuss those factors in details as below:

Economic dimensions of environment

Economic environment refers to the aggregate of the nature of economic system of the country, the
structural anatomy of the economy to economic policies of the government the organisation of the
capital market, the nature of factor endowment, business cycles, the socio-economic infrastructure etc.
The successful businessman visualizes the external factors affecting the business, anticipating the
prospective market situations and makes suitable to get the maximum with minimize cost.
Determinants of international environment for business

 State of wortd economy

 International economic cooperation
 Role of multilateral economic institutions
 International economic Laws, agreements, codes
 Political condition a system in different countries CuLtural factors across countries
 Growth & spread of MNCs
 Technology growth & transfer
 International market structure & competition
 Barriers to international trade & investment

Domestic Macro Economic Environment

 Economic system
 Growth & distribution environment
 Macro economic stability (price LeveL, exchange rate, interest rate, money supply, aggregate
demand, BOP, employment rate)
 Economic policy (monetary poLicy, fiscal policy, industrial poLicy, trade poLicy)
Economic Factors : EUROPE
In Europe, the politicians drove the introduction of the euro currency but the impacts include economic
factors: cross-border pricing, European interest rates, bank charges, price transparency and so on. Other
economic factors include exchange rates, inflation levels, income growth, debt & saving levels (which
impact available money) and consumer & business confidence. There can also be narrow industry
measures that become important. Issues such as the availability of skilled labour or raw-material costs
can impact industries in different ways.

Ranbaxy – the GATS 2005

The Indian pharma industry has evolved over the years, gaining self-sufficiency, and has been recognized
the world over as a producer of high quality, affordable drugs. Over the past decades, there have been a
number of changes in the Indian economic policy framework that have succeeded in lowering the entry
barrier to the market. Indian pharma companies have used new process technologies to make and sell
world class bioequivalent generic drugs. From an import led industry in the 1970s, when 70% of
medicines were being imported, ranbaxy now export 80% of indigenously developed high-quality
medicines, across the globe.
The new patent regime that came into existence on January 1, 2005 presented both challenges and
opportunities for the Indian pharmaceutical industry. The domestic market gradually moved towards
consolidation and only players with strong technical and research capabilities and a global vision
survived. The same scenario was playing out internationally. There was intense competition, price
erosion and a squeeze on margins. Big pharma companies too, were protecting their turf aggressively.
They resorted to every conceivable technical and legal route available in the book. The ranbaxy came
out of it due to its research and development.
The General Agreement on Trade and Services (GATS ) became an opportunity for research based
ranbaxy but a threat to other small companies.

Yellow School Bus transport UK -- Responding to demand

It is extremely important for businesses to respond to changes in demand from customers. For example,
First has responded to increased demand in the Neath valley in Wales by working closely with the Neath
Port Talbot Council to run improved services.
Another good example of responding to demand is in the provision of high quality Yellow School Bus
transport. Market research showed that parents and students wanted safer buses, so First designed
special pilot services with the student in mind, based on the lessons learned from its US operations.
Drivers are trained to work with students. Each day students step onto the same bus, can take the same
seat and are looked after by the same specially trained driver. Vehicle safety features include padded
seating, integrated seat belts, additional escape hatches and CCTV. First is working with the government
via a specially appointed Yellow School Bus commission to investigate the possibility of rolling out
specialised yellow school bus services throughout the UK.
Changes in buying patterns:McCain
The McCain product most people recognise is Oven Chips. McCain is the world's largest producer of
chips. McCain buys 12% of the British potato crop. McCain is also one of the world's largest frozen foods
companies. McCain is a privately owned company with a strong market focus. This means that it carries
out research to find out what consumers want. It then uses this market information to create products
that consumers want to buy.
McCain is the world's largest producer of chips. McCain buys 12% of the British potato crop.
McCain's business is broader than just chips, with a range as wide as frozen potato specialities and
frozen light meals. It provides consumers with a wide variety of cut and seasoned potato products
through UK retailers, like supermarkets and restaurants. These include roast potatoes, potato wedges,
hash browns, waffles and potato croquettes. McCain produces more specific potato shapes like Potato
Smiles, Crispy Bites and Sumthings (shaped as numbers) which appeal to younger consumers. McCain
also makes pizzas.

Economic factors include changes in buying patterns as people's incomes rise. For example, as incomes
go up people prefer to buy what they see as superior varieties of a product type. We see this with the
development of ready prepared foods.
As people become cash-rich and time-poor they prefer to switch to ready meals and simple to prepare
foodstuffs that they can quickly heat in an oven or microwave. Rather than buying potatoes and making
chips at home or taking the time to go to a fish and chip shop, it may be seen as more desirable to buy
oven chips. Of course, it may be cheaper to make your own chips by peeling and cutting up potatoes.
However, with growing affluence people prefer ready prepared oven chips.
Responsible eating and healthy exercise encourages everyone's health and well-being.
McCain has risen to this challenge by creating a range of varieties e.g. McCain's Straight Cut Oven Chips,
Home Fries, roast potatoes and wedges, to appeal to a variety of customers

Differences in Income Levels : Woodland shoes and Car manufacturers

The difference in income levels may necessitate product and price modifications.
The Aero Shoes’ Woodland range of shoes , the replica of the well known US brand timberland , has
been introduced in India at prices much lower than in the US although the Indian target is the upper
segment of the market.
In countries where income levels are low, the scope for charging the price as high as in the high income
economies would be limited.
Cost reduction may become essential for price reduction. Cost reduction here was achieved by setting
up the manufacturing centre in the developing country itself – where labour is cheap and reducing the
packaging cost.
Several MNCs have been introducing low priced brands and small-size packages in india to help
overcome the income constraint.
In developing countries low price models are the mainstay for several car manufacturers.
Economic Policies
There are several Economic Policies that have a very great impact on business.
Important economic policies are Industrial Policy, Trade policy, Foreign Exchange Policy, monetary policy
, fiscal policy and foreign investment and technological policy.
Some categories of business are favourale affected by Government policies, some are adversely
affected, while it is neutral in respect of others.
Similarly , an industry that falls in the priority sector of the policies may get a number of incentives and
other positive support whereas those industries which are regarded as inessential may have the odds
against them.

Popular Economic Condition: Indian Steel exports in 1997- 1998 and 1998-1999

A particular economic condition maybe widespread – international or national – or maybe confined to a

region.
For example – during 1997-1998 when several southe east asian economies underwent a crisis, it
affected the business os even firms in a number of other countries.
The INDIAN STEEL EXPORTS to South East Asia, suffered a severe setback. This prompted the Indian Steel
industry to seriously consider the US and European markets and it was largely successfulin its exports to
these markets – in 1998-1999 steel exports to the US surged byover 100 percent and to Europe nearly
90 per cent.

Adaptation to Marketing Environment: Boeing

The Boeing provides an example of how adaptation to the marketing environment ensures business
success. In early 1970s, the sales of the Boeing 737 began to tail off because of decline in orders from
the airlines of developed Countries like the US. Therefore, the company turned its attention to the
underdeveloped countries mainly the Middle East Africa and South America. But it needed to adapt the
plane to the idiosyncrasies of the Third world aviation. The company redesigned the wings to allow
shorter landings and added thrust to the engines for quicker take offs. It also redesigned the landing
gear and installed low pressure tyres so that the plane could stick to the ground when it touched down.
The gambit worked. The company sold one or two 737s at a time to airlines throughout the world
compared to batches of 20 or 30 to the US airlines in the past. As fledgling Third world airlines grew,
they began buying Boeing’s larger planes and the 737 emerged as best selling commercial jet in history.