Explain Nature and scope of business environment ?

Question

Answer

Nature and Scope of Business Environment:

The business environment is a mixture of various factors that affect the operation of a business. It comprises internal and external factors that influence the functioning of a business. Understanding the business environment is crucial for business leaders to make informed decisions and stay ahead of the competition.

Nature of Business Environment:

1. Dynamic: The business environment is continuously changing due to various internal and external factors. The change could be due to technological advancements, changes in consumer behavior, government policies, or economic conditions.

2. Complex: The business environment is complex and interdependent. The factors that affect the business are not limited to one aspect, but various factors such as political, legal, social, and economic factors.

3. Uncertain: The business environment is uncertain, and businesses need to be prepared for unexpected changes. The uncertainty could be due to changes in government policies, market trends, or natural disasters.

4. Diverse: The business environment is diverse as it comprises various internal and external factors that affect the business. Internal factors such as employees, management, and organizational culture influence the business, while external factors such as competitors, customers, and suppliers also have a significant impact.

Scope of Business Environment:

1. Economic Environment: The economic environment comprises various factors that affect the economy of a country. Factors such as inflation, interest rates, and economic policies of the government affect the business environment.

2. Political Environment: The political environment comprises various factors such as government policies, regulations, and laws that impact the business environment. Businesses need to comply with the legal requirements and regulations to operate smoothly.

3. Social Environment: The social environment comprises various factors such as social trends, cultural values, and demographics that affect the business environment. Businesses need to understand the social trends and cultural values to connect with their target audience.

4. Technological Environment: The technological environment comprises various factors such as technological advancements and innovations that impact the business environment. Businesses need to adapt to the latest technology to stay competitive.

5. Competitive Environment: The competitive environment comprises various factors such as competitors, suppliers, and customers that impact the business environment. Businesses need to analyze the competition and develop strategies to stay ahead.

In conclusion, the business environment is a complex and dynamic mixture of various internal and external factors that affect the operation of a business. Understanding the nature and scope of the business environment is crucial for businesses to make informed decisions and stay ahead of the competition.

Answer

Nature of Business Environment

The nature of business environment is as follows:

1.   Complex: Business environment is compound in nature. Environment consists of a number of factors, events, conditions and influences arising from different sources which impact business thus making the business complex.

2. Interdependence: The environment of the business is made of social, economic, legal, cultural, technological, and political factors. These factors of the environment are inter-dependable. The economic status of a country affects the development of technology. A rich country can make sufficient expenditure on the research and development.

3.  Dynamic: Business environment is constantly changing process. Business environment is dynamic as it keeps on changing in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. The various forces in the environment keep on changing from time to time thus making business dynamic and not static.

4. Inter-relatedness: The different factors of business environment are co-related. For example, let us suppose that there is a change in the import-export policy with the coming of a new government. In this case, the coming of new government to power and change in the import-export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor.

5. Impact: Business environment has both long term and short term impact. Environment therefore has different effects on different firms in the same industry, for example, drugs.

6.    Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

7.  Relativity: It is a relative concept since it differs from country to country and region to region. Political conditions in the USA, for example differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.

Identifies Business Opportunities and Threats

Business environment helps business in identification of various opportunities and threats. When business is able to detect market opportunities timely, they can easily take advantages of such opportunity at earliest. They can earn maximum returns by availing such opportunity before the competitors. By proper interaction between business and its environment all threats can be easily detected. It will enable business in taking corrective measures timely.

Helps in Planning and Policy Formulation

Proper understanding of business environment helps in formulating better policies and strategies. It conveys all current information regarding market conditions to business. All opportunities and threats are scanned through the study of the business environment. Businessmen are properly aware of environment and thereby take all decisions according to it. Their entire plan can be changed effectively and efficiently through environmental awareness.

Provides Useful Resources

Business depends on the environment in which they operate for several resources. Business environment supplies several inputs like raw materials, capital and labour which are used by the business for its operations. These inputs are converted into goods and services for satisfying the needs of the market. Without proper supply of inputs, business cannot continue its operations. It is fully dependent upon environment for taking inputs and delivering the required goods or services.

Improves Performance

Business environment has an effective role in accelerating the overall performance of business organisations. Through continuous environmental awareness, managers update their knowledge and skills. Environmental study serves as the medium of educating management. Monitoring of environment provides qualitative information which helps in developing strategic thinking. It enables managers to adopt suitable management practices to control and improve the performance of business.

Helps in Coping with Rapid Changes

Factors which constitute business environment are dynamic in nature. They keep on changing continuously from time to time. These changes include changes in customer’s preferences, fashion, technology, economic conditions etc.

Proper understanding of the business environment helps business in detecting all these frequently occuring changes easily. It enables them in dealing with these changes efficiently by taking appropriate actions at right time. Managers through continuous monitoring of environment are sensitive to such changes and respond effectively.

Enhances Business Image

Business through proper understanding of its environment are able to improve its public image. They are more responsive and sensitive to the environmental needs through proper knowledge of business environment. Study of environment provides them information for making realistic plans and implementing them effectively. Businesses are able to provide better service and serve the interest of entire society. People are happy with the business and develop confidence towards it. This enables in developing a better image in market.

Assist in Facing Competition

Business environment communicates all details about competitors in market to business. Awareness regarding the actions and strategies of competitors is crucial for every business for meeting competition effectively. It helps business in formulating plans and policies in accordance with the competitor’s actions. Businesses are able to face challenges and competition in market through systematic planning in an efficient way.

Answer

Business – Meaning

Literally speaking, the term ‘business’ means to be ‘busy’ or ‘occupied’. In practice, business includes certain economic activities in which people are busy or engaged. Such activities relate to production, distribution, trading or exchange of goods and services to satisfy the needs of people so as to earn income or profit.

A business is created to provide products or services to customers. If it can conduct its operations effectively, its owners earn a reasonable return on their investment in the firm. In addition, it creates jobs for employees. Thus, businesses can be beneficial to society in various ways.

A business (or firm) is an enterprise that provides products or services desired by customers. Along with the large, well-known businesses such as – The Coca-Cola Company and IBM, there are many thousands small businesses that provide employment opportunities and produce products or services that satisfy customers.

Business – Definitions

“Business may be defined as human activity directed towards or acquiring wealth through buying and selling of goods.” – Lewis H. Haney

“Business may be defined as an activity in which different persons exchange something of value, whether goods or services, for mutual gain or benefit” – Peterson and Plowman

“Business is an enterprise engaged in the production and distribution of goods for sale in the market or rendering service for a price.” – R. N. Owens

Business – Nature and Scope

Business is a vast and interesting subject. If one goes deeper into it, he faces more absorbing and uphill tasks. It encounters with the use of latest scientific and technical know-how, challenges and difficulties it faces from production to the smooth supply of the products to the target audience, problems confronting in raising money and by which method to raise money and the most challenging job of bringing employee together and to spur their motivation level up to a point so that they strive pleasantly to achieve the organizational goals.

A business also encounters the most amazing and challenging job of grappling with so many laws and regulations lay down by the government. The consumers, employees and various other interests groups also influence the business.

In keeping with its above mentioned factors it is always difficult to limit the discussion on the subject like scope of business.

But with the below factors an endeavour has been made to discuss the nature and scope of business:

1. Vastness:

Earlier there used to be the business in form of sole proprietorship or in partnership forms and that too was within the boundaries of a particular district or state. Then slowly and gradually the bigger form of business organization evolved in the form of Joint Stock Company. Because the earlier forms could not cope up with the ever growing demand of the society and were unable to meet the challenges of mass production.

The formation of bigger size companies have gradually started replacing manual labour in manufacturing process and with the advent of automatic machines, production in bulk has become possible. The production philosophy has been replaced by the marketing philosophy where the production is being done by knowing the need of the consumers first and then demand is created.

Traditional channels of distribution have been replaced by the new distribution channels, super bazaars, discount houses, trade fairs, different promotional scheme and reshaped world of advertising has become the order of the day in business to meet the present-day challenges. The bigger production level fetches economies of scale and ultimately the benefits pass on to the final buyers.

The trend toward growing business into bigger size is quite evident. The companies like IOC, ONGC, SAIL, etc., have shown their presence in the Fortune 500 lists. This scenario has given a kind of dynamism to the business.

2. Globalization:

There used to be a time when business operations were limited up to a particular area. Now the trade barriers are crumbling day by day because the word is shrinking rapidly. Networks of transportation, communication, music, and economics have tied the people of the world together as never before. Political boundaries are no barriers to the business.

The fast moving phenomenon of globalization is becoming imperative due to the certain technological explosion, intensity of market competition, and changing lifestyles of the people which has led to the demand for new products. This scenario has occurred due to the multi fold exposure of the people to the ever-growing field of information technology which has opened up new vistas for the business.

This has added up a new dimension that people have stranded learning to be a global manager to meet the challenge of the diversity of the culture to sustain a strong position in the international market.

3. Challenges to the Service Providers:

There was a time when only production and exchange of goods used to come under the scope of business. Service was being considered as the alien part of businesses. But now it is entirely a separate industry which is growing at a very fast pace. These are rapidly growing and increasingly important part of today’s global economy.

Because services are customer-driven, pleasing the customer is more important than ever because service-quality strategists emphasis that it is no longer enough simply to satisfy the customer. The strategic service challenge today is to anticipate and exceed the customer’s expectations which were a rare phenomenon in yester years’ businesses.

Because customers are more intimately involved in the service-delivery process than in the manufacturing process, the business needs to go directly to the customer for service-quality criteria. So, the horizons of business have expanded immensely.

4. An Interdisciplinary Field:

A principle cause of the expansion of the business is due to the information explosion which has been contributed by the various disciplines. Scholars from various fields including psychology, sociology, cultural anthropology, mathematics, philosophy, statistics, political science, economics, logistics, computer science and various fields of engineering have, at one time or another, been interested in business field and its various management theories.

In addition, administrators in business, government, church, health care and education all have drawn from and contributed to the study of business which have given immense knowledge of the field to the practitioners. With each new perspective, new questions and assumptions, new research techniques, different technical jargon, and new conceptual frameworks have come up. This has altogether revolutionized the field of businesses.

5. Information Overload:

Since the time immoral, entire civilization have come and gone. In one form or another, business management was practiced in each. Sadly, during those thousands of years of experience, one modern element was missing- a systematically recorded body of knowledge. In early cultures management was something one learned by word of mouth and on trial and error basis not to record about in textbooks, theorized about or experience with in written form.Thanks to the modern print and electronic media, the collective genius of thousands of management theorists and practitioners has been compressed into a veritable mountain of textbooks, journals, research monographs, audio and video tapes and computer disks, etc. Use of Internet has also made it more explosive in nature. Never before have present business had so much relevant information at their fingertips, often as close as the nearest library.

6. Diversification:

Today’s business is also characterized by diversification. Earlier people used to stick to the one or two business only. The product portfolio of today’s business is expanding like anything. One can understand the concept of diversification by having an overview of Tata’s business in India which ranges from salt to steel. Diversification means introducing different lines of products which are not related to each other.

Proliferation is another name of the game today. It represents introducing different brands in the same product line. For example, FMCG’s giant HLL (Hindustan Lever Ltd.) in India has so many soaps in one time but with different brand names. Nowadays, these measures are used by the companies in the form of certain weapons to face severe competition to sustain in the market as we have never seen before this sort of scenario.

The merger and acquisition waves are also sweeping the world. To prevail in the market, we are able to witness some of the biggest mergers in the world which is another feature of today’s business. With the repeal of the some of the provisions relating to Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act), many companies in our country stretched too far in the name of diversification.

7. Foreign Capital and Technology:There was a time when hardly any country was in the practice of using foreign capital and technology. Because the world is witnessing so many changes and with the implementation of WTO regulations, almost every country has gone international. To pay the international debts, country requires huge amount of foreign capital reservoirs. Most of the countries have been making use of foreign capital and technology to accelerate the pace of their economic growth.

There is hardly any country which is not assisted by foreign capital and technology. Foreign capital and technology play a vital role in the shaping of an economy in a big way. India being a developed economy, the importance of foreign capital and technology needs no emphasis as we have to payback lots of international debts as a new and developing economy.

Broadly a country can access these types of foreign investment, namely, foreign direct investment (FDI) and portfolio investment (FIIs). While FDIs refers to the direct investment in a foreign country whereas the portfolio investors has only a short-term property interest in investing in equities, banks and other securities.

8. Emphasis on Diversity:

Labour forces and consumers are becoming more diverse in terms of national origin, race, religion, gender, and different age categories and personnel preferences around the globe. In today’s business, managers are challenged to manage diversity effectively to tap the full potential of every individual’s unique combination of abilities and traits.

Successful business are the ones which hire the kind of managers who can anticipate and adjust to changing circumstances rather than being passively swept along or caught unprepared. Employers today are hiring managers who can take unfamiliar situations in stride. They are calling for the multilingual and multicultural managers who can manage diversity.

Those who are aware of that how to motivate a diverse workforce. Managing across cultures, emphasis on learning foreign languages are other features of today’s business. Moving from tolerance to appreciation and managing women and their powers are the other different challenges before the business today. This scenario has led the business to different dimensions.

9. Environmentalism:

Environmental issues such as deforestation, global warming, and depletion of the ozone layer, pollution of land, air and water are no longer strictly the issues related to books and conferences. The leading politicians and managers around the world have picked up the environmental banner. The green marketing movement has been gaining momentum around the world.

The businesses are challenged today to develop creative ways to make profits without unduly harming the existing environment. Considering the variety of these sources of change in the environment, global managers are challenged to keep themselves abreast and adjust as necessary. Some companies like Daewoo, Hyundai, Maruti, Tata and Hero Honda in India, with their pollution prevention programmes are leading the way. Indeed, cleaning up the environment promises to generate whole new classes of jobs in the future.

10. Competition:

Gone are the days when business was heavily protected and subsidized, licences, quotas and restrictions were the order of the day. Now competition is the name of modern business. Businessmen always stand on the brink of a fear to eliminate from the market. They stand on their feet to cut down costs, to eliminate deficiencies and incessant improvement in the quality is order of the day.But by the competition, consumer is obviously benefitted by the diverse openings of different competitors. According to Michael Porter “aggressive home based suppliers and demanding local suppliers competing domestic rivals will keep each other honest in obtaining government support”. Nowadays, competition is not only from rival firms but also from the ever improving technology.

For example, typewriters have been completely wiped out from the market by the computers. Traditional postage telegrams are at the verge of elimination by the increasing use of Internet services. So, today’s business is witnessing the manifolds competition which was not prevalent in the past.

11. The Rise of the Rural Market:

The rapid growth of the rural market for a number of products is another important development. The developed economies in the world enjoyed the fruit of sustained growth over a longer period of time but now their markets have been saturated due to the limited population. In the search of growth the Multinational Corporations (MNCs) has started looking for the newer avenues.

In the beginning they targeted theunderdeveloped and developing nations in their urban areas. In India particularly with the liberalization policy of 1991 of the government of India, so many products were flooded in the Indian markets of genuine prices. This scenario could be witnessed up to 1995-96 but then urban markets of India have also started saturating and the different companies started looking for the newer kinds of market and that was rural market.

Earlier rural market due to certain traditional is cultural barriers was not considered by the marketers but now these markets have become the order of the day where around 70 per cent of the population reside in these areas and contributes hefty percentage in the GDP. So, we can say that business have gone to the every nook and corner of the world.

So, from the above discussion, we can conclude that as far as scope of the business is concerned, it is vast and fascinating. It encompasses the use of latest technology and scientific know-how, it has changed its dimension from just producing and exchange of goods as service industry has given a different direction to it. Literature on this subject is ever-growing.

Numerous books, journals, monographs and research articles are being written and fulfillment on each functional area of the business which have never seen before. Special courses are being conducted by the various universities and institutions on business as it has taken a thoroughly professional shape over a period of time. It has crossed its boundaries across the borders so the managers have to learn how to cope up with the diversities of race, casts, languages, religion and sex, etc.

They have to acquaint different cultures and traditions to be successful in the global market. Therefore, we can say that today’s business is entirely different than that of earlier ones and it poses numerous opportunities as well as challenges to the entrepreneurs.

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