Introduction
Every organization exists in a country and operates under certain conditions prevailing in the country. The decisions taken in an organization are influenced by various factors, some of them can be internal and some of them can be external. These factors changes according to the passage of time and the changes have various impacts on the achievement of goals by the organization. In other words, the business organizations function in an environment prevailing in the country which has positive or negative impact on the achievement of result by them.
Dimensions of Business Environment
Business environment can be broadly classified into micro environment and macro environment. Micro environment is the environment prevailing in the organization whereas; macro environment refers to that prevailing in the country. It can also be stated as internal environment and external environment. Another classification is market environment and non-market environment. Just like an individual need an environment conducive for growth, the organizations also need environment conducive to grow and produce results. There are various internal and external happenings which can affect the functioning of an organization. While the internal factors can be controllable or uncontrollable, almost all the external factors are uncontrollable. As such the organization should learn to adapt to the external environment so as to ensure its existence.
Business Management and Macro Environment
As already explained macro environment is external to the organization and beyond their control. This can be domestic environment or global environment. An organization which restricts its business to the domestic country only needs to be concerned with the environment with in the country. If the business is expanded to the other countries also, the global environment also can affect the business growth on account of the global market integration. The example for impact of the global environment on the domestic business entities is the recent sub-prime crisis in US Market. The financial conglomerates like City Group had substantial exposures in sub-prime market and the loan default necessitated them to write off millions. Domestic organizations like ICICI Bank also had similar exposures and had to write off claims. Even State Bank of India had such exposures and they allowed their clients to write off the claims. History tells us such stories of economic crashes like the Latin American Crisis and the East Asian Currency Crisis which were lessons to the business entities across the world. The East Asian Currency crisis led to the collapse of many of the Korean conglomerates due to their inability to meet the claims. Natural Calamities like Hurricane Katrina, Tsunami etc. can also affect the existence of business. The Kobe Earthquake brought down the Nikkei Index which resulted into substantial loss to the 200 old Barings Bank, London due to their over exposure to the Index. There are a number of similar examples where the global environment has affected the business growth.
The domestic environment also affects the business growth. The domestic environment can be politico-legal environment, economic environment and socio-cultural environment. The politico-legal environment refers to the governmental approaches to the business. Such approaches represent the government’s policies and decisions which affect the business favourably or adversely. The politico-legal environment has a number of critical elements such as the form of government, ideology of the ruling party, strength of opposition, role and responsibility of the bureaucracy, political stability, velocity of the government policies and programmes, socio-economic legislations and politico-legal institutions.
The form of government can be a capitalistic form, socialistic form or laissez fare economy. The government can also follow autocracy as in the case of communist countries or democracy as in the case of countries like India. The governments are formed by political parties and the ideology of the political parties leads the government’s policies and plans. If the political party ruling a country is committed against corruption, the business firms will be able to get permissions from the governments easily. For example, in West Bengal, the ruling communist party follows the ideology of industrialization of the state as a result, many industrial units are coming up in the state providing large scale employment to the people in that state. On the other hand the government in Kerala, which is also led by the communist party, nurtures a pro-labour policy; as such the industrialists are less interested to invest in this state. During the last month Kerala lost tons of paddy due to the opposition by the farm workers union led by the communist party against use of machine for harvesting the crop and government’s in action against this attitude. As a result the state had to beg to other states for paddy to feed its masses. If the opposition party is strong they can correct many of the wrong decisions of the government. However, as in the case of Kerala where the opposition is weak, their interferences did not produce much results. Because of this many of the decisions taken by the state government are affecting the business units adversely.
Though the government is led by political parties, the administration is in the hands of bureaucrats. The governmental decisions are implemented by the bureaucracy. In a country where the government controls and regulates the business operations, efficiency of the bureaucracy is very important to ensure timely implementation of decisions. Many of the companies have appointed retired bureaucrats as their liaison officers in order to interact with the government machinery and get things done speedily.
Political stability is another factor which affects the business growth. When the ruling party has the absolute majority, they can continue in the government till the end of the term. On the other hand in the coalition government, any of the constituent parties can pull the government down by withdrawing its support. Therefore, the government may have to dance to the tune of these parties. Unstable government may hesitate to take firm decisions which affect the business units. The decisions will be mostly for pleasing the constituents rather than on economic considerations.
The government may formulate policies with tremendous speed, but when it comes to the implementation part, the process becomes at snail’s pace. For example, in Kerala, we started hearing about Metro Rail Project in Kochi for the last so many years. Though the agreement was also signed by the Metro Rail Corporation for implementation of the programme, the process is now at snail’s pace due to opposition from traders. Similarly, though the government started taking back all the government land from the private owners for expansion of the M.G.Road, Ernakulam and demolished the unauthorized constructions, the project is now in dead-lock. Though policies and projects are formulated speedily, the implementation becomes very slow.
The policies of the government are often enforced through various legal enactments. The socio-economic legislations which govern the business operations constitute the legal environment. The legal enactments which affect the business operations in India are Monopoly and Restrictive Trade Practices Act (replaced as Competition Act), Foreign Exchange Management Act, Industrial Disputes Act, Factories Act etc. Lastly, the functioning of the legislative, executive and judicial actions of the government also affects the business environment. For example, the performance of banks will be affected if the loans are not recovered timely and timely decisions on recovery suits filed by banks affects the recovery performance. Similarly, red tapism affects the functioning of the executive machinery; as a result the decisions on many matters of importance to the industry might be getting delayed.
The economic environment can be macro environment and micro environment. Macro environment is country specific and changes form country to country. These include the operation of economic factors like GDP, National Income, inflation, demand and supply, government’s monetary and economic policies etc. The managers have to interact with the economic environments frequently in order to assess the impact of the variations in these factors on the business performance. For example, a government policy on imposing levy for sugar will affect the sugar manufacturing companies. Similarly during the last six months, the software companies in India are incurring losses on account of appreciating Indian Rupee. The changes in the economic factors affect the purchasing power of the people and therefore influence the demand for products. The micro environment is the organization specific and internal factors. These include a fire in the factory or delay in getting working capital finance from bank etc. An example of micro environment is the closure of Perumbavur based Travancore Rayons Ltd. due to the power shortage and trade union militancy.
Lastly, the socio-cultural environment also plays an important role in the success of any business activity. The business should maintain harmony with the social environment. The critical elements in sociological environment of business are social institutions and systems, social values and attitudes, education and culture, role and responsibility of the government, social groups and movements, socio-economic order and social problems and prospects. Social institutions and systems refer to the social systems like cast, creed, child marriage, joint family etc. The changing social values and attitudes like the change of role of women from house wife to working executives or entrepreneurs also have impact on the business growth. Education and culture is the other factor which influence the business. Growing number of business schools imparting business education, Kerala becoming the 100 percent literate state etc. are examples of changes in the education and culture. The government has a pivotal. The government should be committed to reduce social tension and provide atmosphere conducive for the growth of business. Example for the government’s role is the declaration of special economic zones for promotion of exports, establishment of technological park for development of software industry etc. The development of social movements like communism, trade unionism etc. also affects the business growth. The Kerala State is the best example for such social movements. The communism and trade unionism is adversely affecting the growth of business and industry in this state. Societal pluralism is another factor which affects the business. A society having various religions, culture, language, customs and tradition will turn against the business if any of these are disturbed. People will oppose establishment of a bar hotel near the place of worship or school. Recently, cheer girls were borrowed by the Indian Premier League for dancing in the cricket field, many of the social organsations opposed to it and even the Maharashtra Government threatened to ban the dance in that state. Another critical element is the social problems like the explosive growth of population, unemployment, poverty etc. consequent to the fall in death rate due to better health care system. Some of the African countries like Uganda; Nigeria etc. are suffering due to such problems. The business has to understand the social environment in which it exists and adjust its activities so as to avoid any clash with the social values and systems. The social development, industrialization process and management culture also affected the growth of business. The social developments include the trade union movements, consumer movements etc. While the trade union movements increased the bargaining power of employees, the consumer movement increased the bargaining power of consumers. The traditional system of managing agency which dominated the industrial activities in the country was abolished in 1969 and replaced with participative management, professional management and family owned business. The latest addition to these changes is the entry of multinational companies and foreign companies. Another important development is the changing role of shareholders. The shareholders have now become more powerful which made the corporate management more accountable. The corporate goal has now been re-written as shareholder wealth maximization.
The Environmental movements like Green Peace Activities also play a decisive role in the industrial growth. The responsibility of the business to maintain the ecological balance while expanding their business has increased substantially and the corporate entities are now made accountable for ecological violations. The unscientific usage of natural resources has resulted into its depletion and the large scale industrial expansion became a cause for the environmental deterioration. Some of the major issues the human race now faces are the global warming, industrial pollution, ecological imbalances etc. The rivers have become dry and the ground water resources have been dried up due to the excessive industrial pollution. Another matter of concern is the indiscriminate use of chemicals in industrial processes which caused fatal deceases like cancer. The use Endosulphan in the Northern Districts of Kerala like Kannur, Kazaragode etc. became a controversial issue as the people in the locality was affected by skin deceases. Another example is the industrial pollution created by the erstwhile Gwaliyor Rayons at Mavoor neat Kozhikode. The unit was ultimately closed. Another recent example is the closure of the Coco cola Plant in Plachimada near Palakkad due to the indiscriminate use of ground water which resulted into agitation by the social activitists like Medha Patkar and the local people. . Environmental protection and proper management of the ecology is absolutely necessary for sustainable development. Government has brought out various policy measures to protect the environment. Some of these measures include identification 17 highly polluting industries, prescribing emission norms for vehicles and insistence of compulsory emission testing certificate, drawing up Environmental Action Plan etc. The business also is expected to contribute from their part for the sustainable development. The corporate social responsibility (CSR) has become a globally accepted practice and companies now set apart a portion of their profit for the social benefit. The corporate entities are responsible to their stakeholders and society is one among such stakeholders because the corporate entities are using the resources which would have been otherwise available to the society. Therefore they are bound to return the cost of such resources to the society.
Conclusion
The business is functioning in an environment and has to interact with this environment frequently. The environment can be classified as internal and external environment. The environment can be global environment and domestic environment. The domestic environment can be further classified into economic environment, socio-cultural environment and politico-legal environment. Each of these categories has critical elements. The economic environment can be macro economic environment and micro environment. The critical elements of macro-economic environment are economic systems, nature of the economy, anatomy of the economy, functioning of the economy, economic planning and programmes, economic policy statements and proposals, economic control and regulations, economic legislations, economic trends and structure and economic problems and prospects. The micro-economic factors are organization specific. The critical elements of socio-cultural environment are social institutions and systems, social values and attitudes, education and culture, role and responsibility of the government, social groups and movements, socio-economic order and social problems and prospects. Lastly the critical elements of politico-legal environment are the form of government, ideology of the ruling party, strength of opposition, role and responsibility of the bureaucracy, political stability, velocity of the government policies, plans and programmes, socio-economic legislations and politico-legal institutions. No business can exist by ignoring the environment. There fore the business decision making process should involve the environment analysis also so as to ensure that the decisions do not work against the interest of the environment.
Every organization exists in a country and operates under certain conditions prevailing in the country. The decisions taken in an organization are influenced by various factors, some of them can be internal and some of them can be external. These factors changes according to the passage of time and the changes have various impacts on the achievement of goals by the organization. In other words, the business organizations function in an environment prevailing in the country which has positive or negative impact on the achievement of result by them.
Dimensions of Business Environment
Business environment can be broadly classified into micro environment and macro environment. Micro environment is the environment prevailing in the organization whereas; macro environment refers to that prevailing in the country. It can also be stated as internal environment and external environment. Another classification is market environment and non-market environment. Just like an individual need an environment conducive for growth, the organizations also need environment conducive to grow and produce results. There are various internal and external happenings which can affect the functioning of an organization. While the internal factors can be controllable or uncontrollable, almost all the external factors are uncontrollable. As such the organization should learn to adapt to the external environment so as to ensure its existence.
Business Management and Macro Environment
As already explained macro environment is external to the organization and beyond their control. This can be domestic environment or global environment. An organization which restricts its business to the domestic country only needs to be concerned with the environment with in the country. If the business is expanded to the other countries also, the global environment also can affect the business growth on account of the global market integration. The example for impact of the global environment on the domestic business entities is the recent sub-prime crisis in US Market. The financial conglomerates like City Group had substantial exposures in sub-prime market and the loan default necessitated them to write off millions. Domestic organizations like ICICI Bank also had similar exposures and had to write off claims. Even State Bank of India had such exposures and they allowed their clients to write off the claims. History tells us such stories of economic crashes like the Latin American Crisis and the East Asian Currency Crisis which were lessons to the business entities across the world. The East Asian Currency crisis led to the collapse of many of the Korean conglomerates due to their inability to meet the claims. Natural Calamities like Hurricane Katrina, Tsunami etc. can also affect the existence of business. The Kobe Earthquake brought down the Nikkei Index which resulted into substantial loss to the 200 old Barings Bank, London due to their over exposure to the Index. There are a number of similar examples where the global environment has affected the business growth.
The domestic environment also affects the business growth. The domestic environment can be politico-legal environment, economic environment and socio-cultural environment. The politico-legal environment refers to the governmental approaches to the business. Such approaches represent the government’s policies and decisions which affect the business favourably or adversely. The politico-legal environment has a number of critical elements such as the form of government, ideology of the ruling party, strength of opposition, role and responsibility of the bureaucracy, political stability, velocity of the government policies and programmes, socio-economic legislations and politico-legal institutions.
The form of government can be a capitalistic form, socialistic form or laissez fare economy. The government can also follow autocracy as in the case of communist countries or democracy as in the case of countries like India. The governments are formed by political parties and the ideology of the political parties leads the government’s policies and plans. If the political party ruling a country is committed against corruption, the business firms will be able to get permissions from the governments easily. For example, in West Bengal, the ruling communist party follows the ideology of industrialization of the state as a result, many industrial units are coming up in the state providing large scale employment to the people in that state. On the other hand the government in Kerala, which is also led by the communist party, nurtures a pro-labour policy; as such the industrialists are less interested to invest in this state. During the last month Kerala lost tons of paddy due to the opposition by the farm workers union led by the communist party against use of machine for harvesting the crop and government’s in action against this attitude. As a result the state had to beg to other states for paddy to feed its masses. If the opposition party is strong they can correct many of the wrong decisions of the government. However, as in the case of Kerala where the opposition is weak, their interferences did not produce much results. Because of this many of the decisions taken by the state government are affecting the business units adversely.
Though the government is led by political parties, the administration is in the hands of bureaucrats. The governmental decisions are implemented by the bureaucracy. In a country where the government controls and regulates the business operations, efficiency of the bureaucracy is very important to ensure timely implementation of decisions. Many of the companies have appointed retired bureaucrats as their liaison officers in order to interact with the government machinery and get things done speedily.
Political stability is another factor which affects the business growth. When the ruling party has the absolute majority, they can continue in the government till the end of the term. On the other hand in the coalition government, any of the constituent parties can pull the government down by withdrawing its support. Therefore, the government may have to dance to the tune of these parties. Unstable government may hesitate to take firm decisions which affect the business units. The decisions will be mostly for pleasing the constituents rather than on economic considerations.
The government may formulate policies with tremendous speed, but when it comes to the implementation part, the process becomes at snail’s pace. For example, in Kerala, we started hearing about Metro Rail Project in Kochi for the last so many years. Though the agreement was also signed by the Metro Rail Corporation for implementation of the programme, the process is now at snail’s pace due to opposition from traders. Similarly, though the government started taking back all the government land from the private owners for expansion of the M.G.Road, Ernakulam and demolished the unauthorized constructions, the project is now in dead-lock. Though policies and projects are formulated speedily, the implementation becomes very slow.
The policies of the government are often enforced through various legal enactments. The socio-economic legislations which govern the business operations constitute the legal environment. The legal enactments which affect the business operations in India are Monopoly and Restrictive Trade Practices Act (replaced as Competition Act), Foreign Exchange Management Act, Industrial Disputes Act, Factories Act etc. Lastly, the functioning of the legislative, executive and judicial actions of the government also affects the business environment. For example, the performance of banks will be affected if the loans are not recovered timely and timely decisions on recovery suits filed by banks affects the recovery performance. Similarly, red tapism affects the functioning of the executive machinery; as a result the decisions on many matters of importance to the industry might be getting delayed.
The economic environment can be macro environment and micro environment. Macro environment is country specific and changes form country to country. These include the operation of economic factors like GDP, National Income, inflation, demand and supply, government’s monetary and economic policies etc. The managers have to interact with the economic environments frequently in order to assess the impact of the variations in these factors on the business performance. For example, a government policy on imposing levy for sugar will affect the sugar manufacturing companies. Similarly during the last six months, the software companies in India are incurring losses on account of appreciating Indian Rupee. The changes in the economic factors affect the purchasing power of the people and therefore influence the demand for products. The micro environment is the organization specific and internal factors. These include a fire in the factory or delay in getting working capital finance from bank etc. An example of micro environment is the closure of Perumbavur based Travancore Rayons Ltd. due to the power shortage and trade union militancy.
Lastly, the socio-cultural environment also plays an important role in the success of any business activity. The business should maintain harmony with the social environment. The critical elements in sociological environment of business are social institutions and systems, social values and attitudes, education and culture, role and responsibility of the government, social groups and movements, socio-economic order and social problems and prospects. Social institutions and systems refer to the social systems like cast, creed, child marriage, joint family etc. The changing social values and attitudes like the change of role of women from house wife to working executives or entrepreneurs also have impact on the business growth. Education and culture is the other factor which influence the business. Growing number of business schools imparting business education, Kerala becoming the 100 percent literate state etc. are examples of changes in the education and culture. The government has a pivotal. The government should be committed to reduce social tension and provide atmosphere conducive for the growth of business. Example for the government’s role is the declaration of special economic zones for promotion of exports, establishment of technological park for development of software industry etc. The development of social movements like communism, trade unionism etc. also affects the business growth. The Kerala State is the best example for such social movements. The communism and trade unionism is adversely affecting the growth of business and industry in this state. Societal pluralism is another factor which affects the business. A society having various religions, culture, language, customs and tradition will turn against the business if any of these are disturbed. People will oppose establishment of a bar hotel near the place of worship or school. Recently, cheer girls were borrowed by the Indian Premier League for dancing in the cricket field, many of the social organsations opposed to it and even the Maharashtra Government threatened to ban the dance in that state. Another critical element is the social problems like the explosive growth of population, unemployment, poverty etc. consequent to the fall in death rate due to better health care system. Some of the African countries like Uganda; Nigeria etc. are suffering due to such problems. The business has to understand the social environment in which it exists and adjust its activities so as to avoid any clash with the social values and systems. The social development, industrialization process and management culture also affected the growth of business. The social developments include the trade union movements, consumer movements etc. While the trade union movements increased the bargaining power of employees, the consumer movement increased the bargaining power of consumers. The traditional system of managing agency which dominated the industrial activities in the country was abolished in 1969 and replaced with participative management, professional management and family owned business. The latest addition to these changes is the entry of multinational companies and foreign companies. Another important development is the changing role of shareholders. The shareholders have now become more powerful which made the corporate management more accountable. The corporate goal has now been re-written as shareholder wealth maximization.
The Environmental movements like Green Peace Activities also play a decisive role in the industrial growth. The responsibility of the business to maintain the ecological balance while expanding their business has increased substantially and the corporate entities are now made accountable for ecological violations. The unscientific usage of natural resources has resulted into its depletion and the large scale industrial expansion became a cause for the environmental deterioration. Some of the major issues the human race now faces are the global warming, industrial pollution, ecological imbalances etc. The rivers have become dry and the ground water resources have been dried up due to the excessive industrial pollution. Another matter of concern is the indiscriminate use of chemicals in industrial processes which caused fatal deceases like cancer. The use Endosulphan in the Northern Districts of Kerala like Kannur, Kazaragode etc. became a controversial issue as the people in the locality was affected by skin deceases. Another example is the industrial pollution created by the erstwhile Gwaliyor Rayons at Mavoor neat Kozhikode. The unit was ultimately closed. Another recent example is the closure of the Coco cola Plant in Plachimada near Palakkad due to the indiscriminate use of ground water which resulted into agitation by the social activitists like Medha Patkar and the local people. . Environmental protection and proper management of the ecology is absolutely necessary for sustainable development. Government has brought out various policy measures to protect the environment. Some of these measures include identification 17 highly polluting industries, prescribing emission norms for vehicles and insistence of compulsory emission testing certificate, drawing up Environmental Action Plan etc. The business also is expected to contribute from their part for the sustainable development. The corporate social responsibility (CSR) has become a globally accepted practice and companies now set apart a portion of their profit for the social benefit. The corporate entities are responsible to their stakeholders and society is one among such stakeholders because the corporate entities are using the resources which would have been otherwise available to the society. Therefore they are bound to return the cost of such resources to the society.
Conclusion
The business is functioning in an environment and has to interact with this environment frequently. The environment can be classified as internal and external environment. The environment can be global environment and domestic environment. The domestic environment can be further classified into economic environment, socio-cultural environment and politico-legal environment. Each of these categories has critical elements. The economic environment can be macro economic environment and micro environment. The critical elements of macro-economic environment are economic systems, nature of the economy, anatomy of the economy, functioning of the economy, economic planning and programmes, economic policy statements and proposals, economic control and regulations, economic legislations, economic trends and structure and economic problems and prospects. The micro-economic factors are organization specific. The critical elements of socio-cultural environment are social institutions and systems, social values and attitudes, education and culture, role and responsibility of the government, social groups and movements, socio-economic order and social problems and prospects. Lastly the critical elements of politico-legal environment are the form of government, ideology of the ruling party, strength of opposition, role and responsibility of the bureaucracy, political stability, velocity of the government policies, plans and programmes, socio-economic legislations and politico-legal institutions. No business can exist by ignoring the environment. There fore the business decision making process should involve the environment analysis also so as to ensure that the decisions do not work against the interest of the environment.
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