Ques.-1 Define the term ‘business environment’.

Explain macro external environment with

examples.

Ans.-1 An environment literally means the surroundings in which we live. In the context of
business, the environment is referred to the sum of internal and external factors on an
organization. Business Environment is the environment that affects business. Managers must
understand the impact of these forces on the business by understanding the factors that affect
the business firm and this understanding of the business environment helps the managers to
react effectively to changes in environment and helps in making better decisions.

An external environment are the factors that are outside the organization but affect it. The macro-
environment has thus both positive and negative aspects. The external macro-environmental forces
cannot be uncontrolled by a firm due to this nature firm must adjust according to the macro-
environmental forces. Macro External Environment includes the PESTEL Model, and it includes:

 Political Factors : Political factor includes Government stability/instability, Corruption level,

Tax policies, Government regulations, Government’s involvement in trade unions and
agreements, Competition regulation, Voter participation rates, Amount of government
protests, Defence expenditures, Level of government subsidies, Import-export
regulation/restrictions, Trade control, and Government budgets.
 Economic Factors : Economic factor comprises of Growth rate, Interest rate, Inflation rate,
Exchange rate, Availability of credit, Level of disposable income, GDP trend, Unemployment
trend, Stock market trends, and Price fluctuations.
 Social Factors : Birth rates, Death rates, Immigration and emigration rates, Age distribution,
Wealth distribution, Per capita income, Family size and structure, Lifestyles, Attitude
towards government, Attitude towards work, Cultural norms and values, Religion and
beliefs, Education level, Minorities, and Crime levels all comes under social factor.
 Technological Factors : Technology incentives, R&D activity, Technological changes, Level of
innovation, Technological awareness, Internet infrastructure, and Communication
infrastructure are a part of technological factors.
 Environmental Factors : Environmental factors includes Weather, Climate, Environmental
policies, Natural disasters, Air and water pollution, Recycling standards, Attitudes towards
green products, and Support for renewable energy.
 Legal Factors: Discrimination laws, Antitrust laws, Employment laws, Consumer protection
laws, Copyright laws, Health and safety laws, Education laws, and Data protection laws all
come under the legal factor.

Let us see the PESTEL model of Automotive Industry as an example. In this analysis we will come
to know how political, economic, social, technological, environmental, and legal factors affect the
automotive company.

 Political: It includes safety regulations and emission policies.

 Economic : it includes growing disposable income.
 Social: It includes popularity of driving.
 Technological : It includes self-driving cars and improved safety.
 Environmental: It includes carbon emissions.
 Legal: It includes copyright issues.

Ques.2 What is economic environment? Explain how global economic environment has changed
over time.

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Ans.2 The economic environment refers to all the economic factors that affect commercial and
consumer behaviour. The economic environment consists of all the external factors in the
market. The economic environment consists of different things for different people. Let us take
an example of a farmer and a T.V. channel where the growth of internet advertisement is
important is important factor for a T.V. channel but it is not important for a farmer, on the other
hand rate of fertilizers and weather are important factors for a farmer but it is not important for
a T.V. channel. The term economic environment refers to all the external economic factors that
influence buying habits of consumers and businesses. These factors cannot be controlled by the
company, and can be either macro i.e., on a large scale or micro i.e., on a small-scale.

Microeconomic environment : It refers to things that happen at the consumer level.

Microeconomic factors do not affect the whole economy. The microeconomic factors that
influence the business firm are:

 Competitors,
 Demand,
 Market size,
 Suppliers,
 Supply, and
 The distribution chain i.e., How you supply your goods. For example, through
retail stores, distributors, or the Internet.

Macroeconomic Environment : The macroeconomic environment refers to things that affect the
entire economy. The macroeconomic factors that influence the business firm are:

 Interest rates,
 GDP (Gross Domestic Product) growth,
 Taxes,
 Exchange rates, i.e., how much currencies are worth in relation to one another.
Income after paying tax, and social security, and
 Savings rates.

Global Economic Environment is the effect of business all over the world. It studies trade system,
policies, structure, and nature of an economy, level of income, distribution of income and wealth.
The economic environment explains the economic conditions of any country. The roles of global
economic environment are increasing every day. The global economic environment can be traced
back from 100 years when the traders from East and West came together to exchange goods.
Through the legacy of mercantilism up to the GATT (General Agreement on Tariffs and Trade) was
in 1948. Then GATT was replaced by World Trade Organization (WTO) in 1995 and is continued in
present. The changes that have taken place in global economic environment over a time can be
observed when we cross the borders. It started from barter trade to the time of GATT to WTO.
Main criteria of World Bank for classifying economies are gross national income or your gross
national product(GNP) per capita. Gross National Product per capita is calculated by the sum of
Gross National Product and Investments and then reduce the Revenue. The major changes in
global environment are as follows:

 Capital movements and trade have become the main force of the global economy.
 Product has become uncoupled from employment.
 Primary products have become uncoupled from the industrial economy.

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  The world economy is in control, individual nations are not their despite of the large
world share of the USA and Japan.

Ques.-3 What is meant by political environment of business? Explain the business risks posed by
political system in India.

Ans.-3 Political Environment has a direct influence on business organization. The framework of
governmental economic ideologies, polices, regulations, and legislation are a part of political
business environment. The political environment is the one of the most powerful factors that impact
the viability and sustenance of the business venture. The government prevailing in that region will
have impact on the business happening in that area. The political environment consists of:

 The government in power

 Economic Ideologies
 Provisions of the constitution
 Rules and regulations governing the commerce and business
 Labour laws
 Business and Economic polices

Political system is a complete set of institution, interest groups such as political parties, trade
unions, the political norms and rules that governs their functions. A political system is based on
the ideology of the ruling government, policies, and mode of administration of the government
that comes from that ideology. The socio-economic objectives are clearly enshrined in the
Preamble to the Constitution, Fundamental Rights, and Directive Principe of State Policy. India
has largest democracy in the world. India had plethora of political parties at national and regional
level. Risk that can threaten the viability of a business in India by the political system are:

 Political interference based on party ideologies : Though the Indian economy has been
opened, yet the political ideologies of some parties pose serious hurdles to economic
development.
 High Inflation : Inflation has emerged as a major challenge for policymakers, threatens the
growth in India’s domestic demand-driven economy by eroding the purchasing power of
consumers.
 High Inflation, increase in lending rates : Excessive rise in the cost of credit adversely
impacts business expansion plans and slows down the economy.
 Instability of Government : It can hinder economic thrust and thus have a negative impact
on business.
 Political Opposition to Economic Reforms : Political opposition can slow down the
economic reforms as it can cause hinderance in progress.
 Opposition based on Sensitive Issues : When the country’s opening a multi-brand retail
sector. It is a sensitive political issue as it concerned to livelihoods of millions of people
who are dependent on it.
 Political Unrest : Political unrest in many parts of the country like Kashmir, Assam can
destabilize the economy.
 Redtapism: It often stops businessmen from starting a venture.
 Language and Cultural Differences : Business in India is unlike that of the west. India has
23 official languages; India is more like a continent. For example, Punjabis from Ludhiana
in the north function very differently from Malayali’s from Kochi in Kerala.
 Business culture compared to other Asian countries : India’s business methods and culture
are different from those of other Asian countries

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 Inadequate Infrastructure : In many parts of India the infrastructure available is so bad
that an entrepreneur needs to be very determined to make his business a success.
 Corruption: Corruption in the system can easily compromise the progressive plans.
 Many other risks are specific to the company, the industry, and the location.

By- Anchal Gupta

Roll No.- 2114100121

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