Business Environment

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COMPONENTS OF BUSINESS ENVIRONMENT | |After discussing the meaning of business environment, now we will discuss the various components of business environment. The various components of business environment are- [pic]External environment consists of those factors that affect a business enterprise from outside. External environment includes shareholders, competitors, customers, society, government laws and regulations, policies and technology.  External environment is generally classified into micro environment and macro environment. The micro environment consists of factors in the company's immediate environment that affects the performance of the company.  These include the suppliers, marketing intermediaries, competitors, customers and the public. On the other hand, macro external environment includes larger factors such as economic, demographic, technological, political, natural and cultural factors. We will explain below micro and macro types of external environment of business. Different players in the micro environment normally do not affect all the companies of a particular industry in a similar way. However, sometimes micro environment of the various firms of an industry remains almost same.

External Micro-Environment
Micro environment includes those players whose decisions and actions have a direct impact on the company. Production and selling of commodities are the two important aspects of modern business. Accordingly, the micro environment of business can be divided. The various constituents of micro environment are as under:

Suppliers:- An important factor in the external micro environment of a firm is the supplier of its inputs such as raw materials and components.  Normally, most firms do not depend on a single supplier of inputs.  To reduce risk and uncertainty business firms prefer to keep multiple suppliers of inputs.

Customers: The people who buy and use a firm’s product and services are an important part of external micro environment.  Since sales of a product or service is critical for a firm's survival and growth, it is necessary to keep the customers satisfied.  A concern for customers’ satisfaction is essential for the success of a business firms.  Besides, a business firm has to compete with rival firms to attract customers and thereby increase the demand and market for its product.

Marketing intermediaries: In the firm's external micro environment, marketing intermediaries play an essential role of selling and distributing its products to the final customers.  Marketing provides an important link between a business firm and its ultimate customers. Competitors: Different firms in an industry compete with each other for sale of their products. This competition may be on the basis of pricing of their products and also non- price competition through competitive advertising such as sponsoring some events to promote the sale of different varieties and models of their products. As a consequence of liberalization and globalization of the Indian economy since the adoption of economic reforms there has been a significant increase in the competitive environment of business firms.  Now, Indian firms have to compete not only with each other but also with foreign firms whose products can be imported. In America, American firms faced a lot of competition from the Japanese firms producing electronic goods and automobiles. Publics: Finally, publics are an important force in external micro environment.  Environmentalists, media groups, women’s associations, consumer protection groups, local groups, Citizens Association are some important examples of publics which have an important bearing on the business decisions of the firm.  The existence of various types of publics influences the working of business firms and compels them to be socially responsible. External Macro Environment

Apart from micro environment, business firms face large external environmental forces.  An important fact about external...
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