Business Environment

Meaning

Understanding the environment within which the business has to operate is very important for running a business unit successfully at any place. Because, the environmental factors influence almost every aspect of business, be it its nature, its location, the prices of products, the distribution system, or the personnel policies. Hence it is important to learn about the various components of the business environment, which consists of the economic aspect, the socio-cultural aspects, the political framework, the legal aspects and the technological aspects etc. In this chapter, we shall learn about the concept of business environment, its nature and significance and the various components of the environment. In addition, we shall also acquaint ourselves with the concept of social responsibility of business and business ethics.

The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc.  While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

Feature of business environment

features of business environment can be summarized as follows.

(a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning.

(b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.

(c) The business environment is dynamic in nature, that means, it keeps on changing.

(d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment.  .

(e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

Importance of business environment

There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively.

As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:

(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.

(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.

(d) Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly.

(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

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Factor affect business environment 
Corporate Social Responsibility

Manufacturing Process

The nature of the process of production required by these three different types of production system are distinct and require different conditions for their working. Selection of manufacturing process is also a strategic decision as changes in the same are costly. Therefore the manufacturing process is selected at the stage of planning a business venture. It should meet the basic two objectives i.e. to meet the specification of the final product and to be cost effective.

Type of manufacturing process

The manufacturing process is classified into four types.

(i) Jobbing production

(ii) Batch production

(iii) Mass or flow production

(iv) Process Production

(i) Jobbing Production:  Herein one or few units of the products are produced as per the requirement and specification of the customer. Production is to meet the delivery schedule and costs are fixed prior to the contract.

(ii) Batch Production: In this, limited quantities of each of the different types of products are manufactured on same set of machines. Different products are produced separately one after the other.

(iii) Mass or flow production: Under this, the production run is conducted on a set of machines arranged according to the sequence of operations. A huge quantity of same product is manufactured at a time and is stocked for sale. Different product will require different manufacturing lines. Since one line can produce only one type of product, this process is also called as line flow.

(iv) Process Production: Under this, the production run is conducted for an indefinite period.

Factors affecting the choice of manufacturing process

Following factors need to be considered before making a choice of manufacturing process.

(a) Effect of volume/variety: This is one of the major considerations in selection of manufacturing process. When the volume is low and variety is high, intermittent process is most suitable and with increase in volume and reduction in variety continuous process become suitable. The following figure indicates the choice of

process as a function of repetitiveness. Degree of repetitiveness is determined by dividing volume of goods by variety.

(b) Capacity of the plant: Projected sales volume is the key factor to make a choice between batch and line process. In case of line process, fixed costs are substantially higher than variable costs. The reverse is true for batch process thus at low volume it would be cheaper to install and maintain a batch process and line process becomes economical at higher volumes.
(c) Lead time: The continuous process normally yields faster deliveries as compared to batch process. Therefore lead-time and level of competition certainly influence the choice of production process.

(d) Flexibility and Efficiency:The manufacturing process needs to be flexible enough to adapt contemplated changes and volume of production should be large enough to lower costs.

Hence it is very important for entrepreneur to consider all above mentioned factors before taking a decision regarding the type of manufacturing process to be adopted as for as SSI are concerned they usually adopt batch processes due to low investment.

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Production Planning and Control

Product Design

European Union Crisis

The main aim of EU was to establish economic Integration but due to some reasons it had led Global Economic Crisis. Eurozone Debt crisis has resulted from a combination of complex factor.The reason for Euro zone crisis are discussed as follows:

1: Rising government debt levels

Government debt of Eurozone, Germany and crisis countries compared to Eurozone GDP Government deficit of Eurozone compared to USA and UK In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, a number of EU member states, including Greece and Italy, were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures.

2: Monetary policy inflexibility

Since membership of the eurozone establishesable to "print money" in order to pay creditors and ease their risk of default. (Such an option is not available to a state such as France.) By "printing money" a country's currency is devalued relative to its (euro zone) trading partners, making its exports cheaper, in principle leading to an improving balance of trade, increased GDP and higher tax revenues in nominal terms.

3: Trade imbalances

 During 1999-2007, the  countries (Portugal, Ireland, Italy and Spain) had far worse balance of payment positions. Whereas German trade surpluses increased as a percentage of GDP after 1999, the deficits of Italy, France and Spain all worsened. More recently, Greece's trading position has improved in the period November 2010 to October 2011 imports dropped 12% while exports grew 15% (40% to non-EU countries in comparison to October 2010).

4: Loss of confidence

Prior to development of the crisis it was assumed by both regulators and banks that sovereign debt from the eurozone was safe. Banks had substantial holdings of bonds from weaker economies such as Greece which offered a small premium and seemingly were equally sound. As the crisis developed it became obvious that Greek, and possibly other countries, bonds offered substantially more risk. 

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European Union

Objective and Function of European Union

Objective and Function of European Union

Objective of European Union

   1:Elimination of custom duties among member states.
  2:Elimination of obstacles to the free flow of import and export of goods and    services among member nations
   3:Free movement of capital and people within the block.
  4:Acceptance of common agricultural policies, transport policies,health and safety regulations  and educational degrees.
   5:Common measures for consumer protection.
  6:Common laws to maintain competition throughout the community and to fight monopolies or illegal cartels.
   7:Regional funds to encourage the economic development of certain countries.
 8:Greater monetary and fiscal co-ordination among member states and certain common monetary and fiscal policies. 
    Function of European Union:
    1: Internal Market:     
    Two of the original core objectives of the European Economic Community were the development of a common market, subsequently renamed the single market, and a customs union between its member states. The single market involves the free circulation of goods, capital, people and services within the EU,[ and the customs union involves the application of a common external tariff on all goods entering the market. Once goods have been admitted into the market they cannot be subjected to customs duties, discriminatory taxes or import quotas, as they travel internally.
    2: Competition:
    The EU operates a competition policy intended to ensure undistorted competition within the single market. The Commission as the competition regulator for the single market is responsible for antitrust issues, approving mergers, breaking up cartels, working for economic liberalisation and preventing state aid.
    3:Monetary union:
      The euro is designed to help build a single market by, for example: easing travel of citizens and goods, eliminating exchange rate problems, providing price transparency, creating a single financial market, price stability and low interest rates, and providing a currency used internationally and protected against shocks by the large amount of internal trade within the euro zone. Since its launch the euro has become the second reserve currency in the world with a quarter of foreign exchanges reserves being in euro. The euro, and the monetary policies of those who have adopted it in agreement with the EU, are under the control of the European Central Bank (ECB).
     4:Financial supervision:
   The European System of Financial Supervisors is an institutional architecture of the EU's framework of financial supervision composed by three authorities: the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. The aim of this financial control system is to ensure the economic stability of the EU.
    5:Energy:
      The EU has had legislative power in the area of energy policy for most of its existence; this has its roots in the original European Coal and Steel Community. The EU has some key points in its energy policy: increase competition in the internal market, encourage investment and boost interconnections between electricity grids; diversify energy resources with better systems to respond to a crisis; use existing energy supplies more efficiently while increasing use of renewable energy; and finally increase funding for new energy technologies.


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      European Union
      European union crisis