Business Environment
Domain 3 - Business Environment - tests the meaning and features of environment, its five dimensions, why scanning matters, and India's post-1991 economic reforms.
Meaning and features
Business environment is the sum total of individuals, institutions and other forces outside the business that are beyond its control but affect performance. Features: totality of external forces; specific forces (customers, competitors, suppliers, investors) and general forces (economic, social, political, legal, technological); interrelated; dynamic; uncertain; relative to time and place.
Dimensions
- Economic: interest rates, inflation, income levels, stock market, value of the rupee.
- Social: customs, values, family structure, urbanisation, education.
- Technological: innovation, obsolescence, R&D spending.
- Political: ideology, stability, government attitude to business.
- Legal: legislation, court rulings, statutory bodies.
Importance
First-mover advantage; identifying opportunities and threats; tapping useful resources; coping with rapid change; assisting in planning; improving performance.
India after 1991
Liberalisation - abolition of industrial licensing (except a few industries), tariff reduction, removal of import restrictions. Privatisation - disinvestment and a larger private sector. Globalisation - integration with the world economy through FDI, MNCs and outsourcing. Effects: tougher competition, more demanding customers, rapid technological change, a shift from seller's to buyer's market, new service-sector opportunities.
Worked example
Customs duty on imported fabric is cut from 20% to 5%. For a garment maker buying imported cloth, input cost falls - an opportunity in the economic/legal environment. For a domestic weaver competing with cheap imports, the same change is a threat. Reasoning: one environmental change has firm-specific impact, which is why scanning must precede planning.
Traps
Do not confuse legal with political; do not list employees as an external force (they are internal).