Business environment may be considered at three levels:

Internal environment
Micro environment / task environment / operating environment
Macro environment / general environment / remote environment
External environment:
The external factors, are by and large, beyond the control of a company. The external or
environmental factors such as the economic factors, socio-cultural factors government and
legal factors, demographic factors, geo-physical factors etc., are, therefore, generally
regarded as uncontrollable factors.
It may, however, be noted that a firm may not sometimes have complete control over a the
internal factors. Also, it is some times possible to change certain external factors.
Some of the external factors have a direct and intimate impact on the firm (like the supplier
and distributors of the firm). These factors are classified as micro environment, also known as
task environment and operating environment. There are other external factors which affect an
industr very generally (such as industrial policy, demographic factors etc.). They constitute
what is called macro environment, general environment or remote environment.
EXTERNAL ENVIRONMENT
The external business environment consists of a microenvironment and a macro environment.
Micro Environment
"The micro environment consists of the factors in the company's immediate environment that
affect the performance of the company. These include the suppliers, marketing intermediaries,
competitors, customers and the publics."
The macro environment consists larger societal forces that affect all the factors in the
company's micro environment namely, the demographic, economic, natural, technical,
political and cultural forces."
It is quite obvious that the micro environmental factors are more intimately linked with the
company than the macro factors. The micro forces need not necessarily affect all the firms in
a particular industry in the same way. Some of the micro factors may be particular to a firm.
For example, a firm which depends on a supplier may have a supplier environment which is
entirely different from that of a firm whose supply source is different. When competing firms
in an industry have the same micro elements, the relative success of the firms depends, inter
alia, on their relative effectiveness in dealing with these elements.

Suppliers
An important force in the micro environment of a company is the suppliers, i.e., those who
supply the inputs like raw materials and components to the company. The importance of
reliable source/sources of supply to the smooth functioning of the business is obvious.
Uncertainty regarding the supply or other supply constraints often compel companies to
maintain high inventories causing cost increases. It had been pointed out that factories in
India maintained indigenous stocks of 3-4 months and imported stocks of 9 months as against
an average of a few hours to wo weeks in Japan. The liberalization, however, has caused a
significant change in the situation.
Because of the sensitivity of the supply, many companies give high importance to Vendor
development. Vertical integration, where feasible, helps solve the supply problem. For
example, Nirma has always been a believer of the logic that captive production plants for raw
materials is the best way to production costs in check and it has gone for a mammoth
backward integration. In many cases, however, outsourcing is more beneficial.

It is very risky to depend on a single supplier because a strike, lock out or any other
production problem with that supplier may seriously affect the company. Similarly, a change
in the attitude or behaviour of the supplier may also affect the company. Hence, multiple
sources of supply often help reduce such risks.

The supply management assumes more importance in a scarcity environment. "Company

purchasing agents are learning how to "wine and dine" suppliers to obtain favourable
treatment during periods of shortages. In other words, the purchasing department might have
to "market" itself to suppliers.

Recognising the critical importance of the supply factor, companies all around the world are
increasingly resorting to partnering / relationship marketing. (For details see the author's
Business Marketing (Himalaya Publishing House). Partnering is becoming more and more
international and this provides a challenging opportunity for Indian suppliers to become
international players.

Customers

As it is often exhorted, the major task of a business is to create and sustain customers. A
business exists only because of its customers. Monitoring the customer sensitivity is,
therefore, a prerequisite for the business success.
A company may have different categories of consumers like individuals, households,
industries and other commercial establishments, and government and other institutions. For
example, the customers of a tyre company may include individual automobile owners,
automobile manufacturers, public sector transport undertakings and other transport operators.

Depending on a single customer is often too risky because it may place the company in a
poor bargaining position, apart from the risks of losing business consequent to the winding up
of business by the customer or due to the customer's switching over to the competitors of the
company.

With the growing globalisation, the customer environment is increasingly becoming global.
Not only that the markets of other countries are becoming more open, the Indian market is
becoming more exposed to the global competition and the Indian customer is becoming more
"global" in his shopping.

Competitors

A firm's competitors include not only the other firms which market the same or similar
products but also all those who compete for the discretionary income of the consumers. For
example, the competition for a company's televisions may come not only from other T.V.
manufacturers but also from two-wheelers, refrigerators, cooking ranges, stereo sets and so
on and from Firms offering savings and investment schemes like banks, Unit Trust of India,
companies accepting public deposits or issuing shares or debentures etc. This competition
among these products may be described as desire competition as the primary task here is to
influence the basic desire of the consumer. Such desire competition is generally very high in
countries characterised by limited disposable incomes and many unsatisfied desires (and, of
course, with many alternatives for spending/investing the disposable income).
the consumer decides to spend his discretionary income on recreation (or recreation ca
educatiche en will still be confronted with a number of alternatives to choose from like Ty he
will still become etc. The competition among such alternatives which satsy particular
category of desire is called generic competition.

If the consumer decides to go in for a T.V., the next question is which form of the T.V black
and white or colour with remote control or without it etc. In other words, there is a product
form competition. Finally, the consumer encounters the brand competition i.e., the
competition between the different brands of the same product form.
An implication of these different demands is that a marketer should strive to create priman
and selective demand for his products.

Consequent to the liberalisation, the competitive environment in India has been undergoing a
sea change. Many companies restructured their business portfolio and strategies. In many
industries where a seller's market existed a buyer's market has emerged,

Marketing Intermediaries

The immediate environment of a company may consist of a number of marketing

intermediaries which are "firms that aid the company in promoting, selling and distributing
its goods to final buyers".

The marketing intermediaries include middlemen such as agents and merchants who "help
the company find customers or close sales with them", physical distribution firms which
assist the company in stocking and moving goods from their origin to their destination such
as warehouses and transportation firms; marketing service agencies which assist the company
in targeting and promoting its products to the right markets"" such as advertising agencies,
marketing research firms, media firms and consulting firms; and financial intermediaries
which finance marketing activities and insure business risks.

Marketing intermediaries are vital links between the company and the final consumers. A
dislocation or disturbance of the link, or a wrong choice of the link, may cost the company
very heavily. Retail chemists and druggists in India once decided to boycott the/products of a
leading company on some issue such as poor retail margin. This move for collective boycott
was, however, objected to by the MRTP Commission; but for this the company would,
perhaps, have been in trouble. Hindustan Lever too faced major challenge when it faced a
collective boycott in Kerala on the issue of trade margin.
Financiers

Another important micro environmental factor is the financiers of the company. Besides the
financing capabilities, their policies and strategies, attitudes (including attitude towards risk),
ability to provide non-financial assistance etc. are very important.

Publics
A company may encounter certain publics in its environment. "A public is any group that has
an actual or potential interest in or impact on an organisation's ability to achieve its interests.
Media publics, citizens action publics and local publics are some examples.

Some companies are seriously affected by such publics. For example, one of the leading daily
which was allegedly bent on bringing down the share prices of the company by tarnishing its
image. Such exposures or campaigns by the media might even influence the government
decisions affecting the company. Many companies are also affected by local publics.
Environmental pollution is an issue often taken up by a number of local publics. Actions by
local publics on this issue have caused some companies to suspend operations and/or take
pollution abatement measures. Non-government organisations (NGOs), particularly in
developed countries, have been mounting up protests against child labour, sweat labour,
cruelty against animals, environmental problems, deindustrialisation resulting from imports
and so on. Exports of developing countries, particularly, are affected by such developments.
It is wrong to think that all publics are threats to business. Some of the actions of the publics
may cause problems for companies. However, some publics are an opportunity for the
business. Some businessmen, for example, regard consumerism as an opportunity for the
business. The media public may be used to disseminate useful information. Similarly, fruitful
co-operation between a company and the local publics may be established for the mutual
benefit of the company and the local community

It is wrong to think that all publics are threats to business. Some of the actions of the publics
may cause problems for companies. However, some publics are an opportunity for the
business. Some businessmen, for example, regard consumerism as an opportunity for the
business. The media public may be used to disseminate useful information. Similarly, fruitful
co-operation between a company and the local publics may be established for the mutual
benefit of the company and the local community.

MACRO ENVIRONMENT

A company and the forces in its micro environment operate in a larger macro environment of
forces that shape opportunities and pose threats to the company.
The macro forces are, generally, more uncontrollable than the micro forces. When the macro
environment is uncontrollable, the success of a company depends on its adaptability to the
environment. For example, if the cost of the imported components increases substantially
because of the depreciation of the domestic currency, a solution may be their domestic
manufacture, Important macro environment factors include economic environment, political
and regulatory environment, social/cultural environment, demographic environment,
technological environment, natural environment, and global environment.
Global Environment

The global environment refers to those global factors which are relevant to business, such as
the WTO principles and agreements; other international conventions / treaties / agreements
/declarations / protocols etc.; economic and business conditions / sentiments in other
countries etc. Similarly, there are certain developments, like a hike in the crude oil price,
which have global impact.

The WTO principles and regulations have far reaching implications for Indian business.
Acceptance of product patents, for example, seriously impacts the Indian pharmaceutical
industry. The import and investment liberalisations mandated by WTO have substantially
changed the competitive environment in India.

Economic conditions in other countries may affect the business. For example, if the economic
conditions in a company's export markets are very good, export prospects are generally very
good and vice versa. Recession in other countries can increase the import threats, including
dumping.

International political factors can also affect business, like war or political tensions or
uncertainties, strained political relations between the nation and other countries (which some
times even culminates in sanctions).

Developments in information and communication technologies facilitate fast cross border

spread of cultures, significantly influencing attitudes, aspirations, tastes, preferences and even
customs, traditions and values. This has significant implications for business.
The competitive structure of industries is a very important business environment.
Identification of forces affecting the competitive dynamics of an industry will be very useful
in formulating strategies.

According to Michael Porter's well known model of structural analysis of industries, the state
of competition in an industry depends on five basic competitive forces, viz.,

1. Rivalry among existing firms

2. Threat of new entrants
3. Threat of substitutes
4. Bargaining power of suppliers
5. Bargaining power of buyers