FYBCOM SEM I

COURSE TITLE:
BUSINESS AND ENTREPRENEURSHIP

Dr. Shatrughna Patil

 FYBCOM SEM I
COURSE TITLE:
BUSINESS AND ENTREPRENEURSHIP

Module II
Syllabus
 Module 2 - Business Environment and
Environmental Analysis
Synopsis:
2.1 Business Environment: Concept, Characteristics,
Concept- Internal and External Environment,
2.2 SWOT Analysis, Internal Environment
Components, External Environment Components,
Micro Environment & Macro Environment
2. 3 Macro Environment: Political Environment,
Technological environment, Demographic
Environment, Economic Environment
 Business Environment
Business Environment refers to:
• Basically a sum total of various external
factors within which a business is to be
operated upon.
• The surroundings within which the business
operates.
• External forces, factors and institutions
that affect the functioning of a business
enterprise.
• e.g. customers, competitors, suppliers,
government, and the social, political, legal
and technological factors etc.
 Business Environment
Definition
• According to Davis, Keith:Environment
of the business means "the aggregate of
all conditions, events and influences that
surround and affect it.“

• According to B.O. Wheeler : Business

Environment is "the total of all things
external to firms and individuals, which
affect their organisation and
operations."
 Business Environment
Characteristics
1. Environment is an integral part of business
2. Dynamic
3. Complex
4. Multi-dimensional
5. Long lasting impact on business
6. Affects business planning
7. Regulates the scope of business
8. Uncertainty
9. Relativity
Components of Business Environment
COMPONENTS
OF BUSINESS
ENVIRONMENT

INTERNAL EXTERNAL
ENVIRONMENT ENVIRONMENT

MICRO MACRO
ENVIRONMENT ENVIRONMENT
 Components of Business Environment
INTERNAL EXTERNAL EXTERNAL
ENVIRONMENT MICRO ENVIRONMENT MACRO ENVIRONMENT

• Value system • Suppliers • Political environment

• Management • Customers • Economic environment
philosophy • Competitors • Social and cultural
• Vision, Mission and • Marketing environment
objectives intermediaries • Technological
• Human resource • Public environment
• Internal relationship • Media • Regulatory
• Corporate image environment/Legal
• Physical facilities environment
• Financial resources • Demographic
environment
• Research and
development facilities • Natural
environment/Physical
• Management structure
environment
• International/Global
environment
 SWOT Analysis
• SWOT (strengths, weaknesses, opportunities,
and threats) analysis is a framework used to
evaluate a company's competitive position
and to develop strategic planning.
• SWOT analysis assesses internal and
external factors, as well as current and
future potential.
• A SWOT analysis is designed to facilitate a
realistic, fact-based, data-driven look at
the strengths and weaknesses of an
organization, initiatives, or within its
industry.
• Companies should use it as a guide and not
necessarily as a prescription.
Components of SWOT Analysis
SWOT Analysis Tata Motors
Test your Understanding
 Macro Environment

• Economic Environment
• Technological Environment
• Political Environment
• Demographic Environment
 Economic Environment

• The economic environment of a country

significantly influences the business
landscape by affecting consumer behavior,
investment decisions, and operational
dynamics.
• In India, the economic environment is
shaped by various macroeconomic factors,
policies, and trends.
• Understanding these elements is crucial
for businesses to navigate challenges and
leverage opportunities effectively.
 Key Elements of Economic Environment
1. Gross Domestic Product (GDP)
GDP measures the total value of all goods and services produced
within a country over a specific period, reflecting the overall
economic health and performance.
• Impact on Business: High GDP growth indicates a robust
economy, leading to increased consumer spending and business
investments. Conversely, low GDP growth can signal economic
stagnation, affecting business revenues and expansion plans.
2. Inflation Rate
Inflation indicates the rate at which the general price level of
goods and services is rising, reducing the purchasing power of
money.
• Impact on Business: High inflation can increase the cost of raw
materials and labor, squeezing profit margins. It can also reduce
consumer purchasing power, leading to lower demand for goods
and services. Businesses must adjust pricing strategies and cost
management practices to cope with inflation.
 Key Elements of Economic Environment
3. Interest Rates
Interest rates are the cost of borrowing money, typically
determined by the central bank.
• Impact on Business: Higher interest rates increase the cost of
loans, affecting capital-intensive businesses and reducing
consumer spending on credit-dependent purchases. Lower
interest rates can stimulate business investments and consumer
spending, fostering economic growth.
4. Employment and Unemployment Rates
The employment rate measures the percentage of the working-
age population that is employed, while the unemployment rate
measures the percentage actively seeking employment but unable
to find work.
• Impact on Business: High employment rates boost consumer
confidence and spending, benefiting businesses. High
unemployment can reduce consumer demand and increase
social unrest, affecting business stability and growth prospects.
 Key Elements of Economic Environment

5. Exchange Rates
The exchange rate is the value of one currency relative to
another.
• Impact on Business: Fluctuations in exchange rates affect
businesses involved in international trade. A strong domestic
currency can make exports more expensive and imports
cheaper, while a weak domestic currency has the opposite effect.
Businesses must manage currency risks through hedging and
pricing strategies.
 Key Elements of Economic Environment
6. Fiscal Policy
Fiscal policy involves government spending and taxation decisions
aimed at influencing economic activity.
• Impact on Business: Government spending on infrastructure,
education, and healthcare can stimulate economic activity and
create business opportunities. Tax policies, including corporate
tax rates and incentives, directly affect business profitability and
investment decisions.
7. Monetary Policy
Monetary policy involves the central bank's actions to control the
money supply and interest rates to achieve macroeconomic
objectives.
• Impact on Business: The Reserve Bank of India (RBI) uses
monetary policy tools to manage inflation, control money
supply, and support economic growth. Changes in monetary
policy affect lending rates, investment climate, and overall
economic stability.
Recent Developments and Trends in Economic Environment

1. Economic Reforms
• Impact: Economic reforms such as the implementation
of the Goods and Services Tax (GST), insolvency and
bankruptcy code, and liberalization of foreign direct
investment (FDI) norms have aimed to improve the ease
of doing business in India. These reforms can reduce
compliance costs, enhance market efficiency, and
attract foreign investments.
2. Digitalization
• Impact: Initiatives like Digital India promote the
adoption of digital technologies across sectors. Businesses
benefit from increased efficiency, access to new markets
through e-commerce, and improved customer
engagement through digital platforms.
Recent Developments and Trends in Economic Environment

3. Infrastructure Development
• Impact: Government investments in infrastructure,
including transportation, logistics, and smart cities,
create opportunities for businesses in construction, real
estate, and allied sectors. Improved infrastructure
enhances connectivity and reduces operational costs for
businesses.
4. Sustainability and Green Initiatives
• Impact: Emphasis on renewable energy and sustainable
practices is driving businesses to adopt green
technologies and processes. Government incentives for
renewable energy projects and regulations on
environmental compliance affect business operations
and investment decisions.
Recent Developments and Trends in Economic Environment

5. Impact of COVID-19
• Impact: The COVID-19 pandemic disrupted various
sectors, leading to changes in consumer behavior, supply
chain dynamics, and business operations. The
government’s fiscal and monetary responses, including
stimulus packages and liquidity measures, aimed to
support economic recovery and business resilience.
Test Your Understanding
 Political Environment
•The political environment is a crucial
component of the business environment,
encompassing the impact of government
actions and policies on business operations.
•It can significantly influence business
decisions, strategies, and overall success.
•The political environment refers to the
influence that government actions and
political events have on the operations,
decisions, and performance of businesses.
•It encompasses the policies, regulations, laws,
political stability, and government structures
that affect business activities.
 Components of Political Environment
Government Policies and Regulations
• Economic Reforms: Initiatives like liberalization,
privatization, and globalization since the 1990s
have opened up the Indian market to foreign
investments and increased competition.
• Taxation Policies: Introduction of Goods and
Services Tax (GST) unified the indirect tax
system, simplifying tax compliance and reducing
the cascading effect of taxes.
• Regulatory Framework: Regulatory bodies like
SEBI (Securities and Exchange Board of India)
ensure market integrity and protect investor
interests.
 Components of Political Environment
Political Stability and Risk
• Stability: Political stability in India
contributes to a predictable business
environment, fostering long-term
investment and economic growth.
• Political Risk: Risks include changes in
government, policy shifts, and regional
conflicts, which can impact business
operations and investor confidence.
 Components of Political Environment
Government Support and Incentives
•Make in India: An initiative aimed at
encouraging manufacturing in India,
providing incentives such as easier
compliance, infrastructure support, and tax
benefits.
•Startup India: A program to promote
startups by offering tax exemptions, funding
support, and simplified regulatory processes.
•Incentives for MSMEs: Government policies
supporting Micro, Small, and Medium
Enterprises (MSMEs) through credit
guarantees, subsidies, and market access.
 Components of Political Environment
Trade and Foreign Policy
•Foreign Direct Investment (FDI): Liberalized
FDI policies attract foreign investments in
various sectors, promoting economic growth
and technological advancement.
•Trade Agreements: Bilateral and multilateral
trade agreements with countries and
economic blocs influence market access and
trade volumes.
•Export Promotion: Government initiatives to
boost exports through incentives, trade fairs,
and subsidies.
 Components of Political Environment
Bureaucracy and Corruption
•Ease of Doing Business: Efforts to
streamline bureaucratic processes, such as
the introduction of single-window
clearances and digitalization of regulatory
procedures.
•Corruption: While corruption remains a
challenge, measures like the Lokpal Bill
and digital governance aim to reduce
bureaucratic corruption.
 Components of Political Environment
Lobbying and Advocacy
• Industry Associations: Bodies like CII
(Confederation of Indian Industry) and
FICCI (Federation of Indian Chambers of
Commerce & Industry) lobby for
favorable policies.
• Corporate Lobbying: Companies actively
engage in lobbying to influence policy
decisions and protect their interests.
 Components of Political Environment
Economic Liberalization (1991):
– Impact: Opened up the economy to foreign investments,
reduced tariffs, and deregulated industries.
– Business Response: Increased FDI, entry of multinational
corporations, and enhanced competition.
• Goods and Services Tax (GST) Implementation (2017):
– Impact: Simplified the tax structure, improved compliance, and
reduced logistics costs.
– Business Response: Adjusted pricing strategies, streamlined
supply chains, and benefited from a unified market.
• Demonetization (2016):
– Impact: Short-term disruption in cash-dependent sectors, push
towards digital payments.
– Business Response: Adoption of digital payment systems,
temporary slowdown in sales for cash-reliant businesses.
 Political Environment
•The political environment is a crucial
component of the business environment,
encompassing the impact of government
actions and policies on business operations.
•It can significantly influence business
decisions, strategies, and overall success.
•The political environment refers to the
influence that government actions and
political events have on the operations,
decisions, and performance of businesses.
•It encompasses the policies, regulations, laws,
political stability, and government structures
that affect business activities.
Test Your Understanding
 Technological Environment
•Meaning:
The technological environment refers to the
external factors in technology that impact
business operations, productivity, and overall
success. It encompasses innovations,
advancements in technology, research and
development (R&D), automation, and the
availability of technology infrastructure.
•Importance:
In the modern business landscape, technology
is a critical factor for competition. It can lead
to increased efficiency, lower costs, better
quality, and new product offerings.
 Technological Environment
Components of the Technological Environment
• Technological Innovations: Innovations such as
artificial intelligence (AI), machine learning (ML),
blockchain, and the Internet of Things (IoT) have
transformed business models and practices.
• Research and Development (R&D): Continuous
R&D is vital for businesses to stay ahead of
technological changes and to innovate.
• Automation and Robotics: Automation in
manufacturing, logistics, and even service
industries has streamlined operations, reducing
human error and increasing efficiency.
• Digital Infrastructure: The availability and
quality of digital infrastructure, including
internet connectivity, cloud computing, and
cybersecurity, are critical for modern businesses.
 Impact of Technological Environment on Businesses in India
A. Positive Impacts
• Increased Efficiency and Productivity
– Example: The adoption of automation in manufacturing
by companies like Tata Motors has significantly
increased productivity. Automated assembly lines and
robotics have reduced the time taken for vehicle
production and improved quality.

• Enhanced Customer Experience

– Example: The rise of e-commerce platforms like
Flipkart and Amazon India has revolutionized retail in
India. With AI-powered recommendations, customer
service chatbots, and personalized marketing, these
platforms have significantly improved the shopping
experience.
 Impact of Technological Environment on Businesses in India
A. Positive Impacts
• New Business Models
– Example: The fintech sector in India has seen a surge in
new business models, such as digital payments and
lending platforms like Paytm and PhonePe. These
companies have leveraged mobile technology and
internet connectivity to offer financial services to a
broader audience.
• Global Competitiveness
– Example: Indian IT companies like Infosys and TCS have
become global leaders by continuously investing in
technological advancements. Their ability to offer
cutting-edge solutions in areas like cloud computing,
AI, and big data analytics has made them competitive
on a global scale.
 Impact of Technological Environment on Businesses in India
B. Challenges and Negative Impacts
• Job Displacement
– Example: The increasing use of automation and AI in sectors
like manufacturing and customer service has led to job
displacement. For instance, many routine tasks in BPOs are
now being handled by AI-driven systems, reducing the
demand for human labor.
• Cybersecurity Risks
– Example: With the increased digitalization of businesses, the
risk of cyber-attacks has also risen. Companies like Haldiram's
have faced ransomware attacks, leading to significant
financial and reputational damage.
• Digital Divide
– Example: While urban areas in India have largely benefited
from technological advancements, rural areas still face
challenges due to poor digital infrastructure. This digital
divide can limit the reach of technological benefits, such as in
e-commerce or online education.
 Demographic Environment
Meaning:
The demographic environment refers to the
characteristics of a population in a specific
area, including factors such as age, gender,
income levels, education, occupation, and
family structure. These factors significantly
influence the demand for products and
services and the way businesses operate.
Importance:
Understanding the demographic environment
is crucial for businesses as it helps them tailor
their products, marketing strategies, and
operations to meet the needs of different
population segments.
 Demographic Environment
Key Components of the Demographic Environment
• Population Size and Growth Rate: The total number of people
in a given area and how fast that population is growing.
• Age Structure: The distribution of the population across
different age groups (e.g., children, youth, adults, and
elderly).
• Gender Composition: The ratio of males to females in the
population.
• Income Distribution: The distribution of income across
different segments of the population, which influences
purchasing power.
• Education Levels: The overall literacy rate and the percentage
of the population with higher education.
• Urbanization: The proportion of the population living in
urban areas compared to rural areas.
• Family Structure: The average family size, nuclear versus
joint family systems, and trends in marriage and childbirth.
 Demographic Environment
Impact of the Demographic Environment on Businesses in
India
A. Population Size and Growth
• Market Expansion Opportunities
– Example: With a population of over 1.4 billion, India
offers a vast market for consumer goods companies. For
instance, Hindustan Unilever, a major FMCG player, has a
broad customer base across urban and rural India,
allowing for large-scale distribution and economies of
scale.
• Challenges of Overpopulation
– Example: Overpopulation in certain regions can strain
resources and infrastructure, leading to higher costs for
businesses. Companies operating in densely populated
cities like Mumbai face challenges such as higher real
estate costs and traffic congestion, affecting supply chain
efficiency.
 Demographic Environment
B. Age Structure
• Youth-Centric Market
• Example: India has a young population, with over 50% of
its population under the age of 25. This demographic has
driven the growth of sectors like e-commerce, fashion,
and technology. Companies like Myntra and Xiaomi have
tailored their products and marketing campaigns to
appeal to this younger audience.
• Aging Population
• Example: The increasing elderly population in India has
led to a growing market for healthcare products and
services. Companies like Dr. Reddy's Laboratories and
Apollo Hospitals have expanded their offerings to cater to
the needs of the elderly, including specialized medicines
and geriatric care.
 Demographic Environment
C. Income Distribution
• Rising Middle Class
– Example: The growing middle class in India has
increased the demand for affordable luxury products.
Automobile companies like Maruti Suzuki have
introduced premium models at competitive prices to
attract middle-class consumers who aspire for higher
quality but are price-sensitive.
• Income Disparity
– Example: Income disparity in India creates segmented
markets. For instance, luxury brands like Louis Vuitton
target the affluent urban elite, while brands like
Patanjali focus on affordable products for the lower-
income segments.
 Demographic Environment
D. Urbanization
• Increased Demand in Urban Areas
– Example: The rapid urbanization in India has led to
increased demand for housing, transportation, and
retail. Real estate companies like DLF have focused on
developing residential and commercial properties in
urban areas, while companies like Uber have capitalized
on the need for urban mobility solutions.
• Challenges in Rural Markets
– Example: While urbanization presents opportunities,
companies also face challenges in reaching rural areas.
Despite this, companies like ITC have successfully
penetrated rural markets by developing rural-specific
products and establishing efficient distribution
networks through initiatives like e-Choupal.
 Demographic Environment
E. Education Levels
• Demand for Education and Skill Development
– Example: The rising education levels in India have
fueled the growth of the education and edtech sectors.
Companies like BYJU'S and Unacademy have leveraged
digital platforms to offer online courses and tutoring
services, catering to the demand for quality education
and skill development.
• Impact on Consumer Behavior
– Example: Higher education levels have led to more
informed and discerning consumers. Companies like
Apple and Tesla have capitalized on this by offering
technologically advanced products that appeal to well-
educated, tech-savvy consumers in India.
 Demographic Environment
F. Family Structure
• Nuclear Families
– Example: The shift from joint to nuclear families has
impacted consumer behavior, particularly in urban
areas. For example, real estate developers like Godrej
Properties design apartments with smaller living spaces
and modern amenities to cater to nuclear families.
• Increased Focus on Childcare
– Example: The rise in dual-income households has led to
increased demand for childcare services and products.
Companies like Johnson & Johnson and FirstCry have
expanded their range of baby care products to meet
the needs of working parents.
 Demographic Environment
Future Trends in the Demographic Environment
• Rising Urbanization: Continued migration to urban
areas will increase demand for urban infrastructure,
housing, and services.
• Digital Savvy Population: With increasing digital
literacy, businesses will need to focus more on digital
marketing, online sales channels, and tech-driven
customer engagement strategies.
• Aging Population: The elderly population will continue
to grow, leading to increased demand for healthcare
services, retirement planning, and age-specific
products.
• Diverse Consumer Needs: As income disparity persists,
businesses will need to create products that cater to
both high-income and low-income segments
simultaneously.
Technological & Demographic Environment
Test Your Understanding