The business environment is largely divided between micro environment and macro environment. Micro environment in many cases consists of input supplier, infrastructure services, customers, general public, and supplier’s network.
Macro environment on the other hand consists of government departments, policies, various agencies, rules, customs, socio-political realities those influence the functioning of business.
In this case the community attitudes relating to religious, social, cultural aspects also play very important role. The business environment is determined by all these segments and forces. In this process the educational and cultural processes play a significant role.
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Micro environment also consists of general people, customers, distribution and supply channels, input suppliers, local infrastructure facilities, labour unions.
Input suppliers are very important constituent of external environment. It is the quality of that will determine the quality of output. So company management has to keep a constant vigil and check the quality of input.
Input suppliers will have to be dealt by the company management in “good faith” and “without negligence”. Management should be careful about input supplier’s credibility. Management’s output pattern plans and quality should keep an eye on the customers.
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The supply channels and distribution net work must be made sound otherwise customers will be suffering from difficulty in obtaining the product at a regular interval. Maruti cars advertise there is not a single placing in India where not a Maruti service station is.
So for the FMCG and durable consumer goods’-after sales services are also a very pertinent point for consideration. Business is not a separate entity from customers. Customers are very much an integral part of company’s external environment. Business ventures will not be successful if customers are not satisfied.
Let us now see what do we mean by customer’s satisfaction. Prof. Philip Kotler, an eminent authority on marketing management defines” Satisfaction is a function of perceived performance and expectations.
If performance falls short of expectation, the customer is not satisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied”. Prof Kotler gives umpteen examples how some of the successful companies have won customer’s trust and confidence, assuring customer satisfaction.
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These companies feel customer “is not an outsider, he is very much an integral part of our business.” Thus customer’s interest forms a part of company’s internal environment. Xerox at one time guaranteed “total satisfaction” and would replace at its expense any dissatisfied customer’s equipment within a period of three years-after purchase.” Japanese entrepreneur considers a customer an honoured guest.
Local infrastructures like good roads, water supply form an integral part of local environment. Some industries require natural water for its smooth functioning. If the factories are on the ‘bank of river’ the company will be served by the natural water.
One of the reasons of success of Tata Steel was its vicinity to the Subarnarekha River. Thus we see micro environment offers a company’s basic level playing field and creates the development nucleus.
The large determinant of an organization’s existence is its macroeconomic environment. The government policy, institutions, people customers and their income, global as well as country’s own economic outlook forms part of macroeconomic environment.
A Government policy and government’s attitude towards promotion of business creates the basic condition and how much the environment is conducive to business growth. The return on investment, rates of taxation, interest, safety as well as security of investment-control mechanism are all parts of government policy. Before 1991, foreign investment was at a lower level because policy measures were not favourable, in those days, but after 1991, the policy measures have become wide open and liberalised.
A remarkable difference in investment climate after 1991 reflects a sea change in government’s policy. The liberal imports, with-drawal of various support and concessional schemes, such as subsidies and C.C.S. removal of administered prices are giving rise to market mechanism process. These changes in policy have brought a new era in the entire complexion of the Macroeconomic environment.
The government policy follows the various laws and constitutional provisions of the country. The macro business environment is largely determined by nature and form of governance, constitutional features, and fundamental rights of a country. So the discussion on business environment incorporates the rules, laws, constitutional provisions.
Business process will be futile unless there is right to invest. China became an economic giant as she encouraged foreign investment with separate set of laws and rules of governance with these investors. The labour laws, laws relating to control were different from country’s own laws while they dealt with foreign investors in China.
In the era of globalisation the global aspects plays an important part in today’s macroeconomic business environment. The recession once started in the U.S.A will cast its shadow over all the U.S.A’s trade partners. W.T.O.’s constant endeavour to promote barrier free world trade will obviously have an adverse impact on third’ world countries.
The effort of rich countries to deal in non-tradable issues like child labour, Environment in W.T.O. forum invites much displeasure and discomfort for third world countries and weak economies. The globalisation process has made the world economies more open with- greater trade flow among the countries.
This openness will automatically spread the trade cycle globally and in all parts of the every country. The roles of I.M.F., World Bank are now becoming more important as a part of globalisation process. Their conditionality’s before advancing loans are much consistent with a free trade regime.
The conditionality’s imposed by I.M.F. while they advanced loan to India in 1991-92, also have similarity and compatibility with W.T.O. issues. Thus global perspectives are now more important element in business than it was a decade ago.
A major determinant of macro-economic environment is government’s policy towards promotion of trade and industry. In the post Mao period in China there has been a plethora of multi-faceted industrial enterprises. In India also foreign investments have increased quite substantially after 1991. Indian companies are participating in ADR/GDR issues; procure foreign capital without any prejudice.
Avenues of low cost fund are now wide open and businessmen can avail themselves of these sources of finance. The bank interest is lower, now than what it previously was, Licences and Permit Raj have been made highly flexible. The investment climate is now more positive. Thus we see government policies play the fundamental role in determining macroeconomic environment.
Another important determinant of macro-economic environment is market. Market consists of potential consumers and their income. The consumption practices, prevalence of nature of commodities are important element in market. Developing countries are now emerging as potential markets.
The elements of competition also play important role in the market. If Ford motor Company were to consider entering the German market, it would have to compete with General motors, Volkswagen and Honda motors of Japan.
Foreign players while coming to India consider the nature of competition they have to face. Domestic companies also make various analyses before they launch any product in respect of competition, profit margin, positioning in the manner, brand building etc.