Chapter 4 External environment and business

development services

§ The surrounding conditions in which the business operates are

called the business environment and divided into two broad
categories: internal and external. These environments consist of
various stakeholders.

§ Each of these stakeholders has an interest in the business and

places different demands on the business. Sometimes, their
interests may be similar or in conflict.

§ Management, therefore, must balance the interests of all

stakeholders in its decision making and planning.
Chapter 4. External environment and business
development services

§ The internal environment refers to influences that come from

within the business itself.

§ The external environment consists of macro and operating

factors and refers to influences that come from outside the
business.

§ The factors within the external environment and internal

environment affect business planning.
Chapter 4. External environment and business
development services
Chapter 4. External environment and business
development services
Chapter 4. External environment and business
development services

Phân tích Pestel => Cơ hội, thách thức

Chapter 4. External environment and
business development services
§ The internal environment, or the micro environment, includes
those factors over which the business has some control, such as
employees, managers, management style, corporate culture and
company policies.

§ The external environment includes those factors over which

the business has little control, such as economic conditions,
government policy, competitors and technology. It may be
further divided into the operating environment and the macro
environment.

§ The factors that make up the business environment are

continually undergoing change and act as pressures on the
operations of a business. A business owner must consider these
factors when planning.
Chapter 4. External environment and
business development services
§ The factors that make up the business environment are not
constant and certain.

§ They are continually undergoing change, and a business must

keep ‘in tune’ with the changes and adapt its operations
accordingly.
4.1. Macro-environment analysis
4.1. Macro-environment analysis

§ Peaks — key features § Troughs — key features

• Wages and salaries at low

• Wages and salaries at high levels levels • Business operating at
below full capacity
• Business operating at full
capacity
• Sales and profits at lowest
• Sales and profits at highest levels levels
• Low level of unemployment • Consumer spending at lowest
• Inflation may increase levels
• An increase in consumer • High level of unemployment
spending
• Inflation may remain stable or
fall
4.1. Macro-environment analysis

§ Recovery — key features § Recession — key features

• Increasing consumer • Decreasing consumer

spending spending

• Business expectations • Business expectations

increasingly pessimistic
• increasingly optimistic • Decreasing business
investment
• Increasing business
investment • Sales and profits falling
• Unemployment rising
• Sales and profits rising
• Unemployment falling
4.1. Macro-environment analysis

Changes in the macro environment can affect all businesses. This

environment comprises the broad forces, conditions and trends in
the economy and society within which the business operates.

The business has no control over these factors. Changes within

the macro environment make it necessary for managers to make
adjustments to the business’s planning. For example, new
government regulations may require a business to plan to install
pollution-control devices.

Or, in response to changing social attitudes, businesses may plan

to alter traditional work practices to accommodate more family-
4.1. Macro-environment analysis

The main factors that make up the macro environment are:

political and legal influences — the laws or regulations made by

parliaments and courts, which affect how businesses operate and
behave
societal attitudes — the factors relating to changes in the
attitudes, behaviour, tastes and lifestyles of communities on a
local, national and international scale
economic conditions — the set of influences that relate to
economic activity, including interest rates, wages, unemployment,
exchange rates and inflation
technological issues — the issues related to the growing use of
4.2. Industry and sector analysis
 4.2. Industry and sector analysis
• Whatever the aims of firms, they must take account of the
environment in which they operate if they are to be successful.

• Most firms are not price takers; they can choose the prices they
charge. But in doing so they must take account of the reactions of
their rivals.
 4.2. Industry and sector analysis
• Firms must also take account of rivals in planning their
longer-term strategy – in making decisions about
Ødeveloping and launching new products,
Øhow quickly and how much to expand,
Ø the methods of production to use,
Øtheir supply chain,
Øthe balance of what should be produced in-house and what should
be ‘outsourced’ (i.e. bought in from other firms),

Øtheir sources of finance, and whether to target international

markets or

Ø to confine themselves to producing and selling domestically.

4.2. Industry and sector analysis
§ A business’s operating environment, sometimes called the task environment,
is made up of stakeholders external to the business which have a direct
impact on the operation of the business.

§ The business has less control over these factors than internal environment
factors. The four main stakeholders are:
• customers — the people who purchase goods and services from the
business, expecting high quality at competitive prices
• competitors — other businesses or individuals who produce and sell rival,
or competing, goods or services to the ones offered by the business
• suppliers — the businesses or individuals that supply materials and other
resources that the business needs to conduct its operations
• special interest groups — the groups of people who attempt to directly
influence or persuade a business to adopt particular policies or procedures,
including lobby groups, business associations and unions.
 4.2. Industry and sector analysis

Competitors are the businesses or individuals that offer rival goods or

services.
Not only do businesses need to be aware of existing competitors, but
they also have to monitor the environment for potential newcomers.
Businesses must respond to any change in the actions of competitors.

A business’s suppliers provide the resources that are needed for use in
the production process. Examples of such resources are raw
materials, equipment, machinery, finance and information. Suppliers
may be individuals or other businesses. Good relations with suppliers
are important to guarantee the efficient running of the business, so it
is important for any business to develop a reliable supplier network.
 4.2. Industry and sector analysis
§ The operating environment is affected and influenced by a number of
associations, organisations and interest groups.

§ These special interest groups are groups of people who attempt to convince a
business to change or adopt particular policies or procedures.

§ Some common groups that attempt to influence business decision-making and

planning are:

§ Specific issue groups: These are formed to focus on one specific area, such as
youth unemployment, civil liberties, anti- globalisation or environmental
protection

§ Business associations: These are organisations that support businesses through

the provision of training and education programs, advice and information

§ Unions: Employees may choose to join a union in an attempt to improve their

pay and working conditions.

§ Consumer groups: These are lobby groups that monitor a business’s

performance in terms of its product safety, packaging, pricing and advertising.
 Business environments

The internal environment is made up of elements created by the

people within the business.
Over time, these forces interact with each other to give each
business its unique characteristics.
4.3. Business development services

Service definition
A service has been defined by Kotler et al. (1986) as ‘any activity or benefit that one
party can give to another that is essentially intangible and does not result in the
ownership of anything

OR more fully defined as

(a) A set of functions offered to a user by an organization.

(b) Results generated by activities at the interface between the supplier and the
4.3. Business development services
Service definition

services are characterised by the following:

qIntangibility, in that they are not physical items.

qHeterogeneity, in that they are difficult to
standardise.

qInseparability, in that their production and

consumption are simultaneous.

qPerishability, in that they cannot be stored.

4.3. Business development services

These four features of services are known as the ‘IHIP’ characteristics

4.3. Business development services
THE CONVERSION PROCESS
§ The conversion process converts
ideas and resources into useful
goods and services.

§ The ability to create ideas and

to produce products and
services is a crucial step in the
economic development of any
nation.
4.3. Business development services

THE CONVERSION PROCESS

§ The conversion process converts ideas and resources into
useful goods and services.

§ The ability to create ideas and to produce products and

services is a crucial step in the economic development of any
nation.
4.3. Business development services

THE CONVERSION PROCESS

§ The purpose of manufacturing is to provide utility to
customers.

§ Utility is the ability of a good or service to satisfy a human

need. Although there are four types of utilities—form,
place, time, and possession—operations management
focuses primarily on form utility.

§ Form utility is created by people converting raw materials,

finances, and information into finished products.

§ The other types of utility—place, time, and possession

4.3. Business development services
 4.3. Business development services

§ BDS is an internationally recognized tool to achieve

economic prosperity through the development of Micro,
Small, and Medium Enterprises (MSMEs).

§ Most developed and developing nations are promoting BDS

for MSME development and employment generation

§ Business development services (BDS) refer to a wide

range of non-financial services used by entrepreneurs to
help them improve the performance of their businesses,
access to markets, and ability to compete.
 4.3. Business development services

§ BDS are generally defined as: services that improve the

performance of the enterprise, its access to markets, and its ability
to compete. The definition of BDS... includes an array of business
services [such as training, consultancy, marketing, information,
technology development and transfer, business linkage
promotion, etc.], both strategic [medium to long term issues that
improve performance] and operational [day-to-day issues]. BDS
are designed to serve individual businesses, as opposed to the
larger business community.”

(Committee of Donor Agencies for Small Enterprise Development,

2001)
 4.3. Business development services

§ BDS are services provided by external business experts to

an enterprise in various financial areas where enterprise
needs improvement in order to make them more
competitive.

§ BDS include providing information about new technology,

marketing assistance, advisory services, technological
development.
 4.3. Business development services

§ The main objectives of BDS are:

qProvide non-financial services (e.g., accounting and legal
advice) to enterprises at affordable costs, supplementing
the role of financial services;

q Support enterprises in their promotion, development,

and sustained growth; and

qFacilitate enterprises’ development of competitive

advantages.
 4.3. Business development services

Types of BDS

§ Classified by BDS Provider

- National or subnational government agencies,
industry associations - Private for-profit firms, private
not-for-profit firms, NGOs, parastatals – Individual

§ Classified by purpose
• Not for profit
• For profit
 4.3. Business development services

Channels for delivering BDS: Traditional versus market-oriented

 4.3. Business development services

Traditional channel
 4.3. Business development services

market-oriented channel