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CENTRE FOR FOUNDATION STUDIESFOUNDATION IN BUSINESS PROGRAMMEFBM 1101 FUNDAMENTAL OF BUSINESS

CHAPTER 2 THE BUSINESS ENVIRONMENT

LECTURER : MR. KIRANPAL SINGH

Chapter 2 The Business EnvironmentInternal Business Environment

The domestic (internal) business environment refers to the environment in which a firm conducts its operations and derives its revenues.

In general, businesses seek to be close to their customers, to establish strong relationships with their suppliers, and to distinguish themselves from their competitors.

Internal environmental factors are easier to control than external environmental factorsChapter 2 The Business EnvironmentInternal Business Environment

Some examples of internal business environment are as follows:

- Management changes- Employee morale- Culture changes- Financial changes and/or issuesChapter 2 The Business EnvironmentExternal Business Environment

The external business environment consists of everything outside an organizations boundaries that might affect it.Chapter 2 The Business EnvironmentExternal Business Environment

Technological Environment

The technological environment generally includes all the ways by which firms create value for their constituents.

Technology includes human knowledge, work methods, physical equipment, electronics and telecommunications, and various processing systems that are used to perform business activities.

Chapter 2 The Business EnvironmentExternal Business Environment

Political-Legal Environment

The political-legal environment reflects the relationship between business and government, usually in the form of government regulation of business.

It is important for several reasons, such as the legal system defines in part what an organization can and cannot do.

Various government agencies regulate important areas, such as advertising practices, safety and health considerations, and acceptable standards of business conduct.Chapter 2 The Business EnvironmentExternal Business Environment

Sociocultural Environment

The sociocultural environment includes the customs, mores, values, and demographic characteristics of the society in which an organization functions.

Sociocultural processes also determine the goods and services, as well as the standards of business conduct, that a society is likely to value and accept.Chapter 2 The Business EnvironmentExternal Business Environment

Economic Environment

The economic environment refers to relevant conditions that exist in the economic system in which a company operates.

For example, if an economy is doing well enough that most people have jobs, a growing company may find it necessary to pay higher wages and offer more benefits in order to attract workers from other companies.But if many people in an economy are looking for jobs, as was the case during recessions, a firm may be able to pay less and offer fewer benefits.Chapter 2 The Business EnvironmentExternal Business Environment

Importance of external environment

The external environment plays a critical role in shaping the future of entire industries and those of individual businesses. All businesses, regardless of their size, location, or mission, operates within a larger external environment.

This external environment consists of everything outside an organizations boundaries that might affect it. Not surprisingly, the external environment plays a major role in determining the success or failure of any organization. Chapter 2 The Business EnvironmentExternal Business Environment

Importance of external environment

It is a useful exercise to do an external analysis at the start of the strategy review process. Gather a team together to do a PEST analysis. After the analysis, we will get an overview of the environment that our business is in, the factors that may affect it, and the issues that require attention in the strategy.Chapter 2 The Business EnvironmentExternal Business Environment

How does external business environment affect managers?

The external environment plays a major role in determining the success or failure of any organization. Managers must, therefore, have a complete and accurate understanding of their environment and then strive to operate and compete within it.

Things like political decisions, for example, can have a huge impact on a firm by changing tax laws or regulatory regimes. As another example, the managers must be aware of things like new competitors entering their market.

Chapter 2 The Business EnvironmentSWOT Analysis

Chapter 2 The Business EnvironmentSWOT Analysis

SWOT stands for:

Strength, Weakness, Opportunity, Threat.

A SWOT analysis guides you to identify your organizations strengths and weaknesses (S-W), as well as broader opportunities and threats (O-T). Developing a fuller awareness of the situation helps with both strategic planning and decision-making.

The SWOT method was originally developed for business and industry, but it is equally useful in the work of community health and development, education, and even for personal growth.Chapter 2 The Business EnvironmentSWOT Analysis

A SWOT analysis can offer helpful perspectives at any stage of an effort. It could be used to:

- Explore possibilities for new efforts or solutions to problems.

Make decisions about the best path for your initiative. Identifying your opportunities for success in context of threats to success can clarify directions and choices.

Determine where change is possible. If you are at a juncture or turning point, an inventory of your strengths and weaknesses can reveal priorities as well as possibilities.Chapter 2 The Business EnvironmentFactors of Production

Description

Factors of production are the required resources that a countrys businesses use to produce goods and services.

There are FIVE (5) factors of production :

LaborCapitalEntrepreneursPhysical ResourcesInformation ResourcesChapter 2 The Business Environment Factors of Production

Labor

People who work for businesses provide labor.Labor, sometimes called human resources, includes the physical and intellectual contributions people make while engaged in economic production.Chapter 2 The Business EnvironmentFactors of Production

Capital

Obtaining and using labor and other resources requires capital which is the financial resources needed to operate a business. We need capital to start a new business and then to keep it running and growing.Chapter 2 The Business EnvironmentFactors of Production

Entrepreneurs

An entrepreneur is a person who accepts the risks and opportunities entailed in creating and operating a new business.

Most economic systems encourage entrepreneurs, both to start new businesses and to make the decisions that allow them to create new jobs and make more profits for their owners.Chapter 2 The Business EnvironmentFactors of Production

Information Resources

The production of tangible goods once dominated most economic systems. Today, information resources data and other information used by businesses plays a major role.

Information resources that businesses rely on include market forecasts, the specialized knowledge of people, and economic data.

Chapter 2 The Business EnvironmentFactors of Production

Physical Resources Physical resources are the tangible things that organizations use to conduct their business. They include natural resources and raw materials, offices, storage and production facilities, parts and supplies, computers and peripherals, and a variety of other equipment.Chapter 2 The Business EnvironmentEND OF CHAPTER 2THE BUSINESS ENVIRONMENT