Page 14 - DMGT401Business Environment

Unit 1: Indian Business Environment

5. The impact of an environmental trend often differs significantly for different firm within Notes
the same industry: Any change in environment may have different impacts on different
firms operating in the same industry.

Example: As in pharmaceuticals industry in India the Impact of new patent law will
different on research based pharmacy companies as Ranbaxy and Dr. Reddy's Lab and will be
different on small pharmacy companies.

6. The general environment usually holds both opportunities for, and threat to, expansion:
Development in general environment often provides opportunities for expansion in terms
of both products, and markets.

Example: Liberalization in 1991 opened lot of opportunities for companies and HLL
took the advantage of opportunities and acquire many companies like Lakme, TOMCO, Kissan
etc.

Changes in environment also pose serious threat to entire industry. As liberalization of
1991 poses serious threat of new entrants in the form of MNC to Indian firms.
7. Development in the general environment change competitive battle line: General
environmental changes may alter the boundaries of an industry and change the nature of
its competition. This has been the case with deregulation in the telecom sector in India.
Where since the deregulation every second year new competitor emerges old foes become
friends, M&A take place with every new regulation.
8. Many developments in the general environment are difficult to predict with any degree of
accuracy, while others are readily predictable: Macroeconomic development such as interest
rate fluctuations, the rate of inflation, and exchange rate variations are extremely difficult
to predict on a medium or long-term basis. On the other hand some trends as on
demographic, income level, age can be forecast.

1.1.3 Micro Environment

Micro Environment or the competitive environment refers to the environment, which an
organization faces in its specific arena. This arena may be an industry, or it may be what is
referred to as a strategic group.
Besides looking at primary demand and supply factors, firms examine the state of competition
they face because that determines whether they will remain in the same industry or start a new
one. All the business decisions – what business, pricing, distribution channel, promotion strategy,
product portfolio, etc., depends on the competitive position of the firm.

Example: A new entrant in the glucose biscuit segment will have to study and consider
the marketing mix as well as strategy of existing players like Britannia, Parle, Priyagold, etc.,
before deciding its marketing mix.

Following are the key Micro Environment factors:
The Five Forces of Competition

Professor Michael Porter of the Harvard Business School has demonstrated the state of competition
in an industry as a composite of five competitive forces. Michael Porter provided a framework
that models an industry as being influenced by five forces. The strategic business manager
seeking to develop an edge over rival firms can use this model to better understand the industry
context in which the firm operates.

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