Understanding Business Environment: Objectives, Concepts, and Components

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