Business Environment


Introduction to Business Environment

There are 3 Institutions for allocation of  resources

  • Market (Private Sector): 

    • The decentralized market or capitalist system 
    • It operates on the basis of 
      • Private property
      • Voluntary exchange
      • Competition, and the profit motive.

  • Government (Public Sector): 

    • Centralized Mechanism 
    • In this government can use its tax-raising powers to provide public services to citizens on the basis of criteria other than ability to pay.

  • Community (Voluntary/third/popular): 

    • Decentralized mechanism for allocating resources 
    • Its purpose is to meet certain categories of need rather than to make a profit.

Business Environment:

There are 2 types of business environment:

  • Internal:

    • Production (transformation of inputs to outputs)

  • External:

    • Procurement of Inputs
    • Supply of outcomes to customers

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Environment of Business

  • Market Environment: 

    • Includes those interactions between firms, suppliers, and customers that involve:
      • Voluntary economic transactions
      • The exchange of property. 

  • Non-Market Environment: 

    • Composed of the social, political, and legal arrangements 
    • It structure interactions between the 
      • Firm and individuals
      • Interest groups
      • Government entities
      • Public that are intermediated not by markets but by public and private institutions.

Here, Companies business markets are

  • Companies market environment

    • Competitors
    • Consumers
    • Suppliers

  • Companies Non market environment

    • Regulators
    • Government's
    • Citizens
    • NGO's
    • Activists
    • Media

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Difference in Market and non Market environment

  • Market Environment

    1. Money
    2. Leadearship
    3. Flexibility
    4. Predictability
    5. Value

  • Non Market Environment

    1. Information
    2. Coalitions
    3. Consistency
    4. Uncertanity
    5. Values

  • Management of Market Environment: 

    1. Efficiency
    2. Adaptability
    3. Innovation
    4. Responsiveness to Consumer Demand

  • Management of Non-Market Environment: 

    1. Managing government regulations
    2. Public pressure
    3. Media coverage
    4. International treaties and human rights
    5. Global challenges like climate change
    6. Ethics 
    7. Corporate social responsibility 
    8. Legal compliance

Drivers of Non-Market strategy

  1. Multiple Audiences
  2. Globalization of NGOs
  3. New regulatory Hurdles
  4. Competitive Edge

Analysis of Business Environment

  • PEST 

    • It is a simple framework for environmental analysis that distinguishes four categories or areas:
      • P: Political
      • E: Economic
      • S: Social
      • T: Technological

  • SWOT 

    • It is a framework that combines internal and external analyses
    • The strengths and weaknesses of the organization coupled with the opportunities and threats in the external environment.
      • S: Strength (Internal)
      • W: Weakness (Internal)
      • O: Opportunity (External)
      • T: Threat (External)

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