Page 10 - DMGT401Business Environment

Unit 1: Indian Business Environment

1.1 Theoretical Framework of Business Environment Notes

The framework of business environment can be divided into three broad dimensions:
1. Internal Environment
2. Macro Environment (External Environment)

3. Micro Environment (Relevant Environment, Competitive Environment)
1.1.1 Internal Environment

Internal environment is internal to the organization and it is controllable. In brief important
internal factors are as follows:

1. Culture and Value System: Organizational culture can be viewed as a system of shared
values and beliefs that shape a company' behavioral norms. A value is an enduring
preference for a mode of conduct or an end - state. The value system of founders has a
great and lasting impact on the value system of organization. Value system not only
influences the operations and behavior it also influences the choice of business.
2. Mission and Objectives: The business domain of the company. The mission and objectives
of the company guide priorities, direction, of development, business philosophy, and
business policy.
3. Management Structure and Nature: Structure is the way in which the tasks and sub tasks
are related. Structure is about the hierarchical relationship, span of management
relationship between different functional areas. Structure of top management, pattern of
share holding etc.
4. Human Resource: It deals with factors like manpower planning, recruitment and selection,
and development, compensation, communication, and appraisal. Besides this internal
environment includes corporate resources, production/operation of goods and services,
finance and accounting system and methods, marketing and distribution.

1.1.2 External Environment

External or Macro or General Environment consists of factors external to the industry that may
have significant impact on the firm's strategies. Here we will look at six broad dimensions:
Demographic, Socio-cultural, Political/Legal, Technological, Economic and Global.

All these dimensions of general environment are interrelated. These dimensions not only
influence businesses, but also influence each other. After a political change in 1991, when Congress
government came to power, major economic change took place in the form of LPG, i.e.,
Liberalization, Privatization, and Globalization. This led to an enhancement in the technological
environment of the country. This technological and economical change has transformed the
socio-culture environment of the country.
Globalization has also enabled India to become the software superpower of the world. All
global organizations now have a new and vast market, as well as cheap manufacturing hub,
which has compelled them to change their global marketing and manufacturing strategies.
With this, over the last ten years there has been a drastic change in the India's demography as per
capita incomes have risen. The number of young achievers and high earners has increased
drastically, which changed the entire demand schedule of products:
1. Political Environment: It is the political environment of the country which decides the
fortune of the business in a country.

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