Bgs chapter 2

04/10/2023BGSIT,[email protected]

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Module-2The Dynamic Environment


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Topics under second module

•Historical forces changing the Business environment-Key environments of business-power dimensions of business-Theoritical perspective-Sociological perspective


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•Business environment: Business environment is an environment in which business is conducted. Business environment encompasses all those factors that affect a company’s operations: including customers,competitors,suppliers, distributors, industry trends, substitutes, regulations, government activities, the economy, demographics, social and cultural factors, innovations, and technological developments.


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Key environments/Dimensions of business environment•Business environment is the combination

of internal and external factors that influence a company’s operating situation.

•The business environment can include factors such as: clients and suppliers; its competition and owners; improvements in technology; laws and government activities ;and market, social and economic trends


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• Environment of a business means the external forces influencing the business decisions. They can be forces of economic,social,political and technological factors. these factors are outside the control of business.

• Economic environment• Political environment • Socio-cultural environment • Natural environment• Demographic environment• Technological environment• International environment


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1.Economic environment: under this the below constraints are taken into account.

•Economic conditions: it comprises of national income, per capita income, economic resources, distribution of income and assets, economic developments are important determinants of the business strategies.


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•The economic system: the economic system could be capitalist,socialist,communist or mixed.

•The economic policies: the government decides the economic environment of business through budgets, industrial relations, economic planning, import and export regulations, business laws, industrial policy, control on prices and wages, trade and transport policies, the size of the national income, demand and supply of various goods.


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• Economic Growth: it has direct impact on the business strategies.

• Increased economic growth rate and increase in consumption expenditure, lower the general pressure within an industry and offers more opportunities than threats.

• Rate of interest: it affects the demand for the products in the economy. Low interest rates provide opportunities to the industries to expand whereas rising interest rates pose a threat to such institutions.


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•Currency exchange: it has direct impact on the business environment.ex: Rupee v/s Dollar rate fluctuations in international market.


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Impact of Economic Environment on businessThe impact of economic environment on

business considers the following concepts:

•Demand and offer-it affects the working associated with a business design. The need is the will as well as capability of shoppers to buy a specific item and to provide may be the ability of the company to provide for the need for customers.


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•Marginal and complete power:The utility derived from the production of

extra unit. It often results into short term or even long term fall of sales. There could also be diminishing marginal utility.

•Cash as well as Finance:Financial allows for financial and financial

policies which impact company as well as the clients from the business.


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•Financial Development and growth:•Income and employment: another

important aspect is degree of work as well as rate of earnings.

•Industry cycles: trade cycles modify the changes in the price levels.

•Ex: Inflation. During inflation the price level of the products may increase due to changes in industry cycles.


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2.Global/International economic environment•If any business enterprise is involved in

foreign trade, then it is influenced by not only its own country economic environment but also the economic environment of the country from/to which it is importing or exporting goods.

•There are various guidelines for these trades which are issued by many organizations like world bank,WTO, and united nations.


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• International trade relates to the exchange of capital and goods in the global markets.

• Imports and exports are the aspects of international trade countries and corporations for producing goods and services.

• Investing on an international level allows companies and financial organizations to participate in projects in different areas in the world depending on profitability and market situation.


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•The globalization of economic activity includes the integration of people willing to work in foreign economies.


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•Among the various constituents of business environment discussed. We concentrate on the below constituents.

•The constituents are now elaborated:


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3.Effects of the political environment on business organizations• The political environment in a country affects

organizations and could introduce a risk factor that could cause them to suffer loss.

• Businesses need to be prepared to deal with the fallouts of government policies:

• Impact on the economy:The political environment in a country affects its

economic environment. The economic environment, in turn, affects the performance of a business organization.ex: taxes and government spending.


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•Changes in regulation: Governments could change their rules and regulations, and this could have an effect on a business.

Ex: changes in government regulations.


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•Political stability: particularly for businesses that operates internationally a lack of political stability in any country has an effect on its operations.

•Mitigation of Risk:One way to manage political risk is to buy

political risk insurance.For instance, an index of economic freedom

ranks countries based on how political interference impacts business decisions in each country.


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4. Socio cultural environment

•It is related to the social and cultural practises,beliefs and traditions within a particular society.

•It consists of language, education, religion and superstitions,attitudes,values,material culture, technology.


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Impact of socio cultural environment in business•The relationship among business, culture

and society involves a two way –interaction.

•The impact of socio cultural environment can be summarized as follows:

•In estimating the demand for the product the consumer behaviour and their consumption pattern are to be understood apart from their purchasing power.


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•The product features are designed by understanding the cultural background of consumers.

•Products containing vegetable fats impacts on the business as against the products containing artificial foods.

•The sales promotion techniques based on the understanding of cultural values of people becomes more successful.

•Workers in different region behave differently. If this is understood conflicts with workers may be reduced.


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5.Technological environment

•Technological environment includes the level of technology available in a country.

•Technology provides capital intensive but cost effective alternative to traditional labor intensive methods.

•A firm which is not able to adopt to changing technologies not able to survive.


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Importance of technology

•Technology played a key role in the development of commerce & business.

•Computer revolution changed everything from paper work to computerization.

•Without the technology the idea of globalization would not have become a reality.

•It is impossible for any companies to conduct business without the help of technology.


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Benefits of technology in business•The days when the(CIO) chief information

offer took implementation decisions and passed the responsibility down the line are passed.

•Today CIO is an individual who possesses business as well as well as technical skills.

•Today technology is an integral part of any business right from the purchase of computers and software implementation of network and security tools


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Benefits of technology in communication•Speed•Clarity•Sharing


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Benefits of technology in education

•Personalized learning experience.•Immediate response•Self paced(learners can interpret the

results through charts and other pictorial way)

•Greater access(in remote locations the technology is reaching)


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Benefits of technology in healthcare

•Flexibility•Cost and time saving •Medical devices


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Natural environment and demographic environment•It comprises of natural

resources,weather,climatic conditions, port facilites,topographical factors such as soil,sea,rivers,


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Historical forces changing the business environment•Social forces: the aspects of culture that

guide and influence relationships among people. Need to consider social contrasts

•Political forces: the influence of politics depends on the structure of the organization.

•Economic forces: forces that affect the availability production and distribution of resources.

•Legal forces•Technological forces


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There are nine deep historical forces,

•Industrial revolution refers to a series of changes that create industrial economies. World GDP between 1950 and 2000 exceeded all that came previously in human history. This industrial growth places social institutions under great strain.


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•Inequality is a timeless motive force in all political systems. Income inequality between industrialized and undeveloped nations is pronounced and growing. However, although income inequality is slowly rising, the percentage of people living in poverty worldwide is declining. And the Human Development Index, a statistical tool used by the United Nations to measure human progress, shows increases in overall human welfare since 1900.


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Leadership & Management

Bgs chapter 2