People in society live within the umbrella of a certain environment.

Therefore,
entrepreneurship emerges within the environmental context in every society
of the world.

micro-environment?
The micro-environment is basically the environment that has a direct impact on your
business. It is related to the particular area where your company operates and can
directly affect all of your business processes. In other words, it consists of all the factors
that affect particularly your business. They have the ability to influence your daily
proceedings and general performance of the company. Still, the effect that they have is
not a long-lasting one.

The micro-environment includes customers, suppliers, resellers, competitors, and the

general public.

Customers

The kind of customer base that your company attracts, as well as the reasoning behind
purchasing your product, are going to highly affect the way you create marketing
campaigns. Your customers can be B2C, B2B, international, local, and so on.

Important factors related to customers are:

 Stability of demand
 Prospects of sale growth
 Relative profitability
 Intensity of competition

Suppliers

If a supplier of a particular product is the largest, or even the only one, they are certainly
going to have a big influence on how successful your business is.

The suppliers are extremely important factors as:

 Key link in the value delivery process

 Insurance that your business has the necessary resources
 Essential determinants in terms of price increase or decrease
Resellers

If you decide to sell your product via a third party reseller, or middlemen such as
wholesalers and retailers, then the success of your marketing is going to be highly
dependent on them. If let’s say, a certain retail seller has a strong reputation, it will pass
on to your product.

As a link between you and the customer, they are important in terms of these
factors:

 Promotion
 Sale
 Distribution
 Marketing
 Financial mediation

Competitors

Logically, every business that sells the same or a similar kind of product as you do
is your competition on the market. So, their sale and marketing tactics matter to you a
lot. You need to answer various questions, such as how their product and its price
affects yours and how you can make use of that in order to gain an edge over them.

The three factors that matter in this case are:

 Desire competition
 Product form competition
 Brand competition

The general public

Of course, every business organization has in its best interest to appease to the general
public. Every step that you take needs to be viewed from their perspective as well. It is
extremely important how your actions affect others because their opinion can be the
one thing that either pushes you towards success or pulls you down from the pedestal.

So, the general public is very important in terms of:

 Public opinion
 Media

 Environmental pollution
macro-environment?
The macro-environment is more general - it is the environment in the economy itself. It
has an effect on how all business groups operate, perform, make decisions, and form
strategies simultaneously. It is quite dynamic, which means that a business has to
constantly track its changes. It consists of external factors that the company itself
doesn’t control but is certainly affected by.

The factors that make up the macro-environment are

POLITICAL AND GOVERNMENTAL ANALYSIS :

Politics is the art of the possible. Analyzing the political scene will give the entrepreneur a feeling for
what is possible, what is probable, and what is unlikely.

To a large extent, the individual entrepreneur is forced to accept the current political environment of
the new venture. Collectively and over time, however, an organized group of entrepreneurs can
influence the political sector.

Global and International Issues :

We are all interconnected in a global economy, and events that occur thousands of miles away can
influence our businesses. The main global issues are trade barriers, tariffs, political risks, and bilateral
and multilateral relationships. All of these issues are interrelated.

Trade Barriers and Tariffs :

Trade barriers and tariffs hinder the free flow of resources across national boundaries. They are the
result of economic interest groups within a country attempting to prevent transnational competition.
The trend today is to reduce trade barriers worldwide.

Political Risk :

The potential for instability, corruption, and violence in a country or region is known as political risk.
Political risk is an important variable, because in areas where it is high, resources are difficult and costly
to procure, protect, and dispose of. Further, the risk of governmental nationalization and the legal
appropriation of firms is always present.

National Issues
 Political and governmental analysis at the national level refers to taxation, regulation, antitrust
legislation, government spending, and patent protection.

Taxation :

The primary political factor facing the entrepreneur is taxation. Governments require large amounts of
money to promote the public good and carry out the will of the people (stakeholders).

However, taxation reduces the cash available to a firm for reinvestment. Thus, the entrepreneur may
invest or reinvest not the economically rational amount, but a somewhat lower amount—his or her
after-tax earnings.

Some new ventures are not able to generate outside financing because their after-tax returns to
investors will simply be too low to justify the investment. Taxation affects not only individual businesses,
but also the relationships between businesses, giving some firms advantages over others. Special tax
breaks for certain industries, such as depreciation and depletion allowances, benefit the firms that
receive them. Capital-intensive companies, such as manufacturers, benefit disproportionately from the
tax shield that depreciation affords. On the other hand, service businesses with large investments in
training and development cannot depreciate their employees.

Regulation :

Government agencies control the flow of resources to firms and the property rights of business owners
through federal regulation. The government creates these agencies in response to a special-interest
group or a group of stakeholders to protect its interests, values, and goals.

Regulation is not inherently bad; we all belong to one special-interest group or another. For example,
we all eat and take medicine at some time. The Food and Drug Administration, with its regulatory
function, helps protect our interests in these matters.

Patent Protection :

National governments grant patents and enforce patent laws. A patent is legal property that enables its
holder to prevent others from using a product or service for a specified period of time. There are three
types of patents:

1. Utility patents : which cover new articles, processes, machines, and techniques

2. Design patents : which cover new and original ornamental designs for manufactured products

3. Plant patents : which cover various forms of life, and genetically-engineered organisms.

Government Spending :

In most countries, the national government is the largest purchaser and consumer of goods and
services. The government is therefore a large market, and it displays preferences for certain products,
services, and suppliers. These preferences are influenced by pressures from the various interest groups,
stakeholders, and political organizations that constantly lobby the government.

State, Regional, and Local Issues

State, regional, or local tax policies can create opportunities or disadvantages for the entrepreneur. At
the state level, three other areas affect business: licensing, securities and incorporation laws, and
economic development and incentives.

Licensing : Licenses are economic privileges granted to individuals and firms that enable them to legally
conduct a business. Not all businesses require licenses, but many do.

The entrepreneur must remain watchful of current licensing regulations and potential changes to
upgrade enforcement that could affect the new venture.

Securities and Incorporation Laws :

Many security regulations and incorporation laws are written and enforced by the states. Because the
U.S. Constitution does not specifically grant the federal government the power to regulate business
incorporation, this is one of the major regulatory roles left to the states.

Most early financing that the firm receives is covered by state securities regulations. Entrepreneurs need
to employ lawyers and accountants to ensure that the firm complies with all state regulations.

Incentives :

State and local authorities control the granting of economic-development incentives and tax
abatements to new or old businesses relocating within their jurisdiction.

These incentives can be a powerful stimulus for new firms. They may include subsidized job-training
programs, real estate improvements and favorable real estate tax treatment, and improved
infrastructure (e.g., roads and interchanges, sidewalks, water and sewer improvements).

STAKEHOLDER

Stakeholder analysis helps the entrepreneur identify which groups and interests are friendly to the new
venture and which are hostile. It enables the entrepreneur to see whether any groups have an
immediate affinity for the product or service, and whether this affinity can be translated into a market.
The analysis also reveals trends regarding consumer attitudes and behavior for the new venture’s
products, competing products, and complementary goods.

Seven Dimensions
Stakeholders’ influences can be both positive and negative. Not all stakeholders are alike. Stakeholders
may vary along the following seven dimensions

1) Resource capability: The degree to which stakeholders have access to resources that help influence
businesses or agencies

2 ) Extent of influence: The degree to which the interest group is able to promote its agenda. Some
stakeholders are organized as lobbying groups and have enormous influence—for example, the National
Rifle Association or Mothers against Drunk Driving.

3) Degree of organization: The extent to which stakeholders are organized for collective action locally,
regionally, and nationally. Some stakeholders are very well organized and influential. Others are
disorganized or incompetently managed organizations. They do not represent a significant threat to
existing firms.

4) Nature of interest: The type of agenda the interest group has: a specific agenda (e.g., cleaning up
toxic waste sites) or a general agenda (e.g., making business responsive to people’s needs).

5) Duration: The length of time the interest group has been active and its potential staying power.
Sometimes stakeholders are interested in issues that prove to be fads or of passing interest. This is
especially true in areas such as consumer goods, travel, and leisure industries.

6) Degree of manifestation: The ability of the interest group to take its case directly to the public or to
the media.

7) Bases of influence: The extent to which an interest group can gain support from other interest groups
that share an affinity for similar causes.

MACROECONOMY

The macroeconomy is the total of all goods and services produced, distributed, sold, and consumed.
Where does all of this activity take place? It happens at the global, national, and local levels. Each level
has its own macroeconomy, and the sum of all the lower levels is the global economy. The entrepreneur
should analyze all three macroeconomies.

There are two types of macroeconomic change: structural change and cyclical change.

Structural Change :

Structural changes in the macroeconomy are major, permanent shifts of resources and customers from
one sector of the economy to another. As these shifts occur, the financial capital, physical resources,
and employees diminish in an industry that is fading, and84 ENTREPRENEURSHIP flow to the emerging
industry. An example of recent structural change can be found in the newspaper industry. News-
gathering capability, advertising dollars, financial resources, and technological innovation have been
transferred from the printed newspaper industry to the Internet and the electronic news and
information industry. Without new investment and innovative strategies, this industry may become a
dinosaur.

Cyclical Change :

The macroeconomy enjoys periods of growth followed by periods of contraction. These alternating time
periods form what is called the business cycle. Business cyclicality is the degree to which the new firm
follows the trend of the business cycle. A venture that grows and contracts as the economy does is
procyclical. An example is the automobile industry and its suppliers. People buy more cars when their
wages are high and rising and they feel their jobs are secure. Thus, when the economy is good, car sales
are good, and when it is poor, car sales are slow.

Understanding the new venture’s relationship to the business cycle is crucial to the entrepreneur
because it is difficult, if not impossible, for the new business to run counter to its natural cyclicality.

Clearly, the entrepreneur needs to scan and monitor the economic variables that indicate the direction
of economic trends.

TECHNOLOGY

Technological analysis requires scanning and monitoring from the time of basic research through
product development and commercialization.

Technological analysis also includes scanning of operations and manufacturing techniques.

Technological change takes place in two ways: (1) through pure invention (and scientific discovery), and
(2) through process innovation.

Pure Invention :

Pure invention is the creation of something that is radically different from existing technologies or
products. Because pure invention is different, it has certain characteristics that are economically
interesting. An invention may have no competitors at its birth, thereby giving a monopoly to the
individuals who hold its legal rights. The disadvantage at this time is that the invention also has no
market. Further, there may never be a market for the commercial version of the invention. The
combination of the monopolist upside with the no-ready-market downside makes the economic aspect
of invention risky because the outcomes are potentially so variable.

Process Innovation :
It is incremental and evolutionary. Its purpose is to make existing industries more efficient. Process
innovation refers to the small changes in design, product formulation and manufacturing, materials, and
service delivery that firms make to keep their product up-to-date and their costs down.

Frequently, process innovation improvements are made by people working for large companies. If these
companies are not the best place to fully exploit these improvements, the people who make them may
decide to become entrepreneurs. They literally spin themselves and their new product into a new
venture.

successful innovations had some or all of the following characteristics:

1. They were moderately new to the market.

2. They were based on established technology.

3. They saved customers money.

4. They met customer expectations.

5. They supported existing processes and procedures.

SOCIODEMOGRAPHY

The sociodemographic phase of business environment analysis has two closely-related aspects:
demographics and social trends (sometimes referred to as lifestyle trends). The interaction that results
when these elements combine is known as popular culture. Enormous business opportunities in
consumer and durable goods, retailing and services, leisure and entertainment, and housing and
construction are found in a society’s popular culture.

Demographics :

Demographic changes are a major source of long-term social change. Demography is the study of trends
in human populations: the size of the population and its various subgroups; the population’s age
structure, geographic distribution, and ethnic and racial mix; and the distribution of income and wealth
within the population.

Demography is destiny, because all of these factors form the essence of consumer demand, industrial
capacities, and purchasing power. Markets are created from demographic analysis.

Social Trends :

Lifestyles reflect people’s tastes and preferences from an economic standpoint. Lifestyle-related
variables that affect new venture creation include household formation, work modes and labor-force
participation rates, education levels and attainments, patterns of consumption, and patterns of leisure.
Scanning and monitoring lifestyle changes are relatively easy because many diverse sources of data are
available. Much of this data is aggregated and therefore suggests trends. There are both public and
private sources for demographic data. The national government, through its agencies, bureaus, and
regulatory bodies, collects vast amounts of data.

ECOLOGY

Ecological analysis is the study of the current state of the ecology. The ecology pertains to such issues as
pollution and waste disposal, recycling of usable materials, workplace safety and hazards, and overall
quality of life.

The ecosystem and its protection enter into all major entrepreneurial and businessdevelopment
decisions. For example, product development and design issues take into account the rate of usage and
transformation of natural resources and the disposal of waste products.

Ecological issues are bottomline concerns; the entrepreneur must be as accountable for them as any
other business person or citizen . Ecological awareness goes beyond simply addressing the
manufacturing issues of pollution and waste.

The entrepreneur is part of the world movement toward sustainable development, that is, meeting the
needs of the current generation without compromising the needs of future geenerations.

Entrepreneurs should make decisions about these matters in the planning stage of a business, not at the
crisis stage.

Culture
Power itnce

individuals of lower social class may consider entrepreneurship as a unique process for individuals of
high social class, In this way, a high proportion of population outside this small group could fail to carry
out entrepreneurship in the exercise of assessment of opportunities within the context.

Uncertainty avoidance

Practices associated with uncertainty avoidance include aspects such as resistance to risk, and resistance
to both changes and development of new products; therefore, it is estimated that a society with high
uncertainty avoidance shows little support for entrepreneurship.

Collectivism (Institutional Collectivism)

This dimension reflects the degree to which individuals are encouraged by social institutions to
integrate into groups within organizations and society. In this sense, societies that value
entrepreneurship and innovation introduce an efficient institutional system to promote innovative
companies.

Assertiveness

This dimension refers to the extent to which individuals are (or should be) assertive, confrontational
and aggressive in social relationships.

In highly assertive societies people may be encouraged to take risks, negotiate aggressively and be
competitive, while a lower level of assertiveness in society will produce less entrepreneurship by
opportunity.

Humane orientation

This is the degree to which individuals in organizations or societies encourage and reward others to be
fair, altruistic, friendly, generous and caring with others.

a society of low or middle GDP and high level of humane orientation is driven towards
entrepreneurship.

Value
“A value is a conception, explicit or implicit, distinctive of an individual or characteristic of a group, of
the desirable, which influences the selection of available means and ends of action.”

Simply stated, this statement means that the choices we make reflect our values. The values that
individuals and groups hold cluster around the dimensions of the macroenvironment .

People hold political values relating to the role of government, political participation, and distributive
justice.
They hold regulatory values concerning issues such as consumerism and energy policy.

Their social values reflect their beliefs about work, the relationship between races, and the significance
of gender.

Their economic values are reflected in the choices they make about growth and taxation.

Some of these values are at the core of an individual’s belief systems, and others are on the periphery.

NORMs
the rules of behavior that are considered acceptable in a group or society.
This includes what is expected of you and what you think is expected of you
by your community or a particular group.
Because these norms differ from region-to-region, they can impact how a business operates in the
norms influence business strategies, such as:

 Relationship expectations
 Preferences for products and services
 Perception of external businesses and local ethics

norms influence Business Performance such as:

 Leadership hierarchy
 Time
 Gender barriers

society

The social setting in which the people grow, shapes their basic beliefs, values
and norms.

The main components of social environment are as follows:

1. Caste Factor
By social mobility’ we mean the freedom to move from one caste to another.
The caste system does not permit an individual to move to a higher caste.
Thus, commercial activities were the monopoly of the . Dominance of certain
ethnical groups in entrepreneurship is a global phenomenon

2. Family Background

This factor includes size of family, type of family and economic status of
family. In a study by Hadimani, it has been revealed that Zamindar family
helped to gain access to political power and exhibit higher level of
entrepreneurship.

3. Education

In any society, the system of education has a significant role to play in

inculcating entrepreneurial values.

4. Attitude of the Society

A related aspect to these is the attitude of the society towards

entrepreneurship. Certain societies encourage innovations and novelties, and
thus approve entrepreneurs’ actions and rewards like profits. Certain others
do not tolerate changes and in such circumstances, entrepreneurship cannot
take root and grow. Similarly, some societies have an inherent dislike for any
money-making activity.

scanning

Successful scanning catches important changes early, giving the new venture enough lead time to
ad. Scanning gives the entrepreneur a sensitivity to environmental conditions that sometimes
looks like intuition.

monitoring

The monitoring model, however, is not reality; rather, it is a workable version of cause and
effect. Monitoring is less general and therefore more focused than scanning.
 forecasts

These can be projections for elements such as price level, the direction of interest rates, or future
scenarios for cause and effect. For example, a typical forecast might be: If the money supply
grows at above-target rates, inflation will occur. Thus, inputs for forecasts are the data collected
from monitoring.

Assessing

Assessing the environment is the most difficult and important of the four environmental analysis
tasks. Here the entrepreneur has to answer that most difficult of questions: What does it all
mean?