Lecture Note
Understanding Business Environment: Objectives, Concepts, and Components
-
University:
University of Michigan -
Course:
BE 530 | Econ Analysis: Firm & Consumer Academic year:
2023
-
Views:
10
Pages:
24
Author:
fathimarifa288
UNIT 1 : INTRODUCTION
TO BUSINESS
ENVIRONMENT
LEARNING OBJECTIVES
After going through this unit , you
will be able to :
❀ understand the meaning and
concept of Business
❀ outline the characteristics of
Business
❀ understand the meaning and
concept of Business Environment ❀ discuss the characteristics of
Business Environment
❀ explain the difference between
micro and macro environment
❀ explain the meaning and
objectives of Environmental
Analysis
INTRODUCTION
★ The first unit of the paper on
business environment discusses the major objectives of business like
survival , stability , growth etc. and
environmental influence on business
.
★ This unit will help us to know the
relationship between the
organization and its environment the micro and macro environment ;
and its elements like customers ,
competitors , organizations , market
, suppliers , intermediaries etc.
★ In addition to this , the unit will
discuss impact of demographic ,
economic , government , legal ,
political , cultural , technological and
global environment on business .
★ In this unit , we shall also discuss
the concept of business ,
characteristics of Business
Environment , Internal and External Business Environment , meaning and
objectives of Environmental Analysis
.
MEANING AND CONCEPT
OF BUSINESS
✧ In simple words business means
an occupation in which people
regularly engage in an activity with a
view to earning profit .
✧ The term business is derived from
the word ' busy .
✧ Business involves the activities
like production or purchase of goods
for sale , or exchange of goods or
supply of services to satisfy the
needs of other people .
✧ Let us discus some definition of
business given by some scholars : According to Prof. R. N. Owens : "
Business is an enterprise engaged in
the production and distribution of
goods forsale in a market or
rendering of services for a price "
According to L.R. Dicksee : "
Business is a form of activity
pursued primarily with the object of
earning profits for the benefit of
those on whose behalf the activity is
conducted "
According to Urwick and Hunt : "
Business is any enterprise which
makes , distributes or provides any
article or servicewhich other
members of the community need and
are willing to pay for "
According toHaney : " Business may
be defined as human activity
directed towards producing or
acquiringwealth through buying and
selling of goods " ✧ From the definitions above it can
be summarized that business is an
integral part of the ecology and
social system and therefore , its
decision and performance are
influenced by a host of diverse
factors both internal and external environment .
★ Business mainly comprises of all
profit seeking activities of the
organization which provide goods
and services that are necessary to
the economic system .
★ The word environment means a "
surrounding that influences
development and growth of any
situation " .
★ Business environment implies the
internal and external factors or
economic and non - economic
factors which influences the
business .
★ Business may be classified in the
following ways : a) Business that produces Goods
b) Business which produces
Services
c) Business that distribute Goods
d) Business that facilitate
distribution of Goods
e) Business that deals in Finance and
Financial Services
★ Let us discuss it in detail :
Business that produces Goods :
✰ Goods can be classified as i )
Products and ii ) Commodities .
✰ Commodities are the goods
produced by the primary sector for
example ' Agriculture , fishing and
Mining ' .
✰ Products are the goods produced
by the secondary sectorfor example ' Manufacturing ' industries .
✰ The conceptof commodity and
product can be with the help of the
following examples .
✰ Wheatis a commodity whereas the
wheat flour is a processed product .
Similarly , tomato is a commodity
and the product will be tomato sauce
.
✰ Sugarcane is a commodity , sugar
is a product .
✰ Atta is a product , Ashirvaad Atta
is a brand .
Business which produces Services :
❅ Service sector is a part of tertiary
sector .
❅ Tertiary sector comprises trade
and services . ❅ A service is different from the
physical goods .
❅ The examples of various
servicesare banking , hotel , education , health ,
recreation , media , real estate etc.
Businesses that distribute Goods :
⚘ Distribution may be explained as
the process of moving the product
from the producer to the consumer .
⚘ In this process , a good number of
business opportunities are there .
⚘ Dealers , C & F Agents ,
wholesalers , retailers are various
examples in this regard .
Business that facilitates distribution
of Goods :
⚘ There are many types of firms that
facilitate the distribution of goods
for example auction houses , transportation firms , warehouses ,
courier companies etc.
Business that deals in finance and
financial services :
⚘ Many a business depends to alarge
extent on funds raised from external
sources .
⚘ The examples are : commercial
banks , developmental banks , and
insurance and investment companies
.
CHARACTERISTICS OF
BUSINESS
❈ As discussed in the previous
section , business is an activity that
is carried out with the intention of
making financial benefits and it has
the following characteristics Exchange of goods and services for
Income :
❈ The first characteristic of
business involves the exchange of
goods and services . Business is to provide goods and render
services to people .
❈ It provides the publicwith the
things it needs and wants in order to
survive , enjoy life and improvein a
material sense .
❈ Business provides the solution to
the needs and desire of the
customers .
Profit Motive :
❃ The other characteristic of
business is the profit motive .
❃ Business is always a profit
seeking activity .
❃ It supplies goods and services
tocustomers who satisfy their
demand and desire . ❃ It adds to society's valueby
earning of a profit .
❃ Profit is the biggest stimulus for
survival of the business and its
future development .
❃ Society permits business toearn
profit as a reward for assuming the
risks of operating a business .
Recurring Activities :
❋ All the activities in business are
recurring in nature and it operates in
a continuous basis .
❋ Business is not one time
activity .
Risks :
⚘ When we talk about business then
there will always be a risk associated
with it . ⚘ One of the economic theories of
profit regards profit as " reward for
bearing risks " .
⚘ The common risks can be
identified as the changes in the
technology , consumer tastes and
preferences , supply and demand
conditions etc.
⚘ The changes take place at a faster
rate making it quite risky for the firm
to sustain .
Society Oriented :
✥ Business is also an essential
participant in society .
✥ As a result , society looks
tobusiness for something more than
products , services and profits .
✥ Business being a part of the
society should be conducted in an
ethical manner so that it can contribute to the overall
development of the society .
COMPONENTS OF BUSINESS
☘ Business activities can be
categorised under two heads .
They are as follows :
1) Industry
2) Commerce ☘ Industry is the branch of business
activities which is concerned with
raisingproduction , fabrication or
possessing of goods and services .
☘ Industryis an activity concerned
with conversion of raw materials or
semi - finished goods intofinished
goods .
☘ Industry provides two types of
goods ; namely consumer goods and
Industrial goods .
☘ Consumer goods are those goods
manufactured by industry forultimate
use of a consumer ; for example
toothbrush , toothpaste , cloth and
food products etc.
☘ Industrial Capital goods are those
goods produced and used for further
production . Types of Industry
⚜ Industry is further classified into
five broad types .
⚜ They are as listed below with a
brief description on each of them .
a . Extractive industry :
✿ Extractive industries are those
industries concerned with extraction
of wealth fromsurface of the earth ,
soil , forest , water , air etc. , for
instance agriculture , mining etc.
b . Genetic industries :
✿ Genetic industries are those
industries concerned with
reproduction and multiplication of
plants and animals for making profit
on their sale .
✿ For example , nurseries , cattle
building and poultry farming etc. C. Manufacturing industries :
✦ Manufacturing industries are
engaged in the conversation and
process of raw materialthrough
separation , combination and
transformation into finished goods .
✦ Examples includemachinery and
plants of all types , iron and steel ,
sugar , paper , cotton cloth ,
electricalappliances , zinc ore , paper
pulp , etc.
d. Construction industries :
✫ Construction industries are
concerned with the construction of
roads , railways , dams , canals ,
buildings , bridges etc. These are
mainly concerned with the
manufacture ofnon - moveable items
. e. Service industries :
✰ Service industries produce
intangible entities which cannot be
seen or touched .
✰ Examples include banking ,
transport , insurance ,
communication andservices of a
professionalslike lawyers , doctors ,
dentists , managementconsultants ,
advertisers , chartered accountants
and engineers , etc.
f. IT Industries :
✴ It is a major industry facilitating
and driving the growth of a number
of other industries .
✴ ITES ( Information Technology
Enabled Services ) is an emerging
sector .
✴ Examples include Call Centres ,
BPOs etc. Commerce
𓆸 Commerce has been defined as "
the sum total of those processes
which are engaged inthe removal of
the hindrance of persons ( trade ) ,
place ( transport and insurance ) ,
andtime ( warehousing ) in the
exchange ( banking ) of commodities
".
Trade :
☽ Trade means sale , transfer , or
exchange of goods and services ,
through certainancillary functions
like packing , warehousing , banking
, transportation , insurance , and
advertising .
☽ Trade may be :
1) Domestic Trade
2) International Trade
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