Business Environment- Chapter 1

Chapter 1 :A GLIMPSE OF BUSINESS ENVIRONMENT

Meaning of Business Environment 

Business Environment consists of all those factors that have a bearing on the business, such as the strengths, weaknesses, internal power relationships and orientations of the organisation; government policies and regulations; nature of the economy and economic conditions; socio-cultural factors; demographic trends; natural factors; and, global trends and cross-border developments

Factors Influencing Business Decision

Types of Environment

Forces Driving Industry Competition

The Common Entry Barriers 1. 2. 3. 4. 5. 6.

Government Policy Economies of Scale Cost Disadvantages Independent of Scale Product Differentiation Monopoly Elements Capital Requirements

Rivalry among existing competitors Number of firms and their relative market share, strengths etc  State of growth of industry  Fixed or storage costs  Indivisibility of capacity augmentation 

Contd…  Product

standardization and switching

costs  Strategic stakes  Exit Barriers  Diverse competition  Switching costs  Expected retaliation

Threat of substitutes  “Substitutes

limit the potential returns in an industry by placing a ceiling on the price firms in the industry can profitability charge. The more attractive the price performance alternative offered by substitutes , the firmer the lid on industry profits.

Bargaining power of buyers  The

volume of purchase relative to the total sale of the seller  The importance of the product to the buyer in terms of the total cost  The extent of standardization o differentiation of the product  Switching costs

 Profitability

of the buyer  Potential backward integration of the buyer  Extent of buyers’ information

Bargaining power of Suppliers  Extent of concentration and domination in the supplier industry  Importance of the product to the buyer  Importance of buyer to the supplier  Extent of substitutability of the product  Switching costs  Extent of differentiation or standardization of the product  Potential for forward integration by suppliers

Strategic Management Process