CENTRE FOR FOUNDATION STUDIES

FOUNDATION IN BUSINESS PROGRAMME

FBM 1101 FUNDAMENTAL OF BUSINESS

CHAPTER 2
THE BUSINESS ENVIRONMENT
LECTURER : MR. KIRANPAL SINGH

CHAPTER 2 THE BUSINESS

ENVIRONMENT
Internal Business Environment
The domestic (internal) business environment refers to the
environment in which a firm conducts its operations and
derives its revenues.
In general, businesses seek to be close to their customers, to
establish strong relationships with their suppliers, and to
distinguish themselves from their competitors.
Internal environmental factors are easier to control than
external environmental factors

CHAPTER 2 THE BUSINESS

ENVIRONMENT
Internal Business Environment
Some
examples
of
internal
environment are as follows:
-

Management changes
Employee morale
Culture changes
Financial changes and/or issues

business

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ENVIRONMENT
External Business Environment

The external business environment consists of everything outside an

organizations boundaries that might affect it.

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ENVIRONMENT
External Business Environment
Technological Environment
The technological environment generally includes all
the ways by which firms create value for their
constituents.
Technology includes human knowledge, work
methods, physical equipment, electronics and
telecommunications, and various processing systems
that are used to perform business activities.

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ENVIRONMENT
External Business Environment
Political-Legal Environment
The political-legal environment reflects the relationship
between business and government, usually in the form of
government regulation of business.
It is important for several reasons, such as the legal system
defines in part what an organization can and cannot do.
Various government agencies regulate important areas, such as
advertising practices, safety and health considerations, and
acceptable standards of business conduct.

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ENVIRONMENT
External Business Environment
Sociocultural Environment
The sociocultural environment includes the customs,
mores, values, and demographic characteristics of
the society in which an organization functions.
Sociocultural processes also determine the goods and
services, as well as the standards of business
conduct, that a society is likely to value and accept.

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ENVIRONMENT
External Business Environment
Economic Environment
The economic environment refers to relevant conditions that
exist in the economic system in which a company operates.
For example, if an economy is doing well enough that most
people have jobs, a growing company may find it necessary
to pay higher wages and offer more benefits in order to
attract workers from other companies.But if many people in
an economy are looking for jobs, as was the case during
recessions, a firm may be able to pay less and offer fewer
benefits.

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ENVIRONMENT
External Business Environment
Importance of external environment
The external environment plays a critical role in shaping the
future of entire industries and those of individual
businesses. All businesses, regardless of their size, location,
or mission, operates within a larger external environment.
This external environment consists of everything outside an
organizations boundaries that might affect it. Not
surprisingly, the external environment plays a major role in
determining the success or failure of any organization.

CHAPTER 2 THE BUSINESS

ENVIRONMENT
External Business Environment
Importance of external environment
It is a useful exercise to do an external analysis
at the start of the strategy review process.
Gather a team together to do a PEST analysis.
After the analysis, we will get an overview of
the environment that our business is in, the
factors that may affect it, and the issues that
require attention in the strategy.

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ENVIRONMENT
External Business Environment
How does external business environment affect managers?

The external environment plays a major role in determining

the success or failure of any organization. Managers must,
therefore, have a complete and accurate understanding of
their environment and then strive to operate and compete
within it.
Things like political decisions, for example, can have a huge
impact on a firm by changing tax laws or regulatory regimes.
As another example, the managers must be aware of things
like new competitors entering their market.

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ENVIRONMENT
SWOT Analysis

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ENVIRONMENT
SWOT Analysis
SWOT stands for:
Strength, Weakness, Opportunity, Threat.
A SWOT analysis guides you to identify your organizations
strengths and weaknesses (S-W), as well as broader opportunities
and threats (O-T). Developing a fuller awareness of the situation
helps with both strategic planning and decision-making.
The SWOT method was originally developed for business and
industry, but it is equally useful in the work of community health
and development, education, and even for personal growth.

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ENVIRONMENT
SWOT Analysis
A SWOT analysis can offer helpful perspectives at any stage of an effort.
It could be used to:
-

Explore possibilities for new efforts or solutions to problems.

Make decisions about the best path for your initiative. Identifying
your opportunities for success in context of threats to success can
clarify directions and choices.

Determine where change is possible. If you are at a juncture or

turning point, an inventory of your strengths and weaknesses can
reveal priorities as well as possibilities.

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ENVIRONMENT
Factors of Production
Description
Factors of production are the required resources that a
countrys businesses use to produce goods and services.
There are FIVE (5) factors of production :

Labor
Capital
Entrepreneurs
Physical Resources
Information Resources

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ENVIRONMENT
Factors of Production
Labor
People who work for businesses provide labor.
Labor, sometimes called human resources,
includes the physical and intellectual
contributions people make while engaged in
economic production.

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ENVIRONMENT
Factors of Production
Capital
Obtaining and using labor and other resources
requires capital which is the financial
resources needed to operate a business. We
need capital to start a new business and then
to keep it running and growing.

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ENVIRONMENT
Factors of Production
Entrepreneurs
An entrepreneur is a person who accepts the risks
and opportunities entailed in creating and operating
a new business.
Most economic systems encourage entrepreneurs,
both to start new businesses and to make the
decisions that allow them to create new jobs and
make more profits for their owners.

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ENVIRONMENT
Factors of Production
Information Resources
The production of tangible goods once dominated
most economic systems. Today, information
resources data and other information used by
businesses plays a major role.
Information resources that businesses rely on
include
market
forecasts,
the
specialized
knowledge of people, and economic data.

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ENVIRONMENT
Factors of Production
Physical Resources
Physical resources are the tangible things that
organizations use to conduct their business.
They include natural resources and raw
materials, offices, storage and production
facilities, parts and supplies, computers and
peripherals, and a variety of other equipment.

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ENVIRONMENT

END OF CHAPTER 2
THE BUSINESS ENVIRONMENT