State and explain different types of business environment.

 TYPES OF BUSINESS ENVIRONMENT

Different forces influence business organizations directly or indirectly. Such forces are divided into two types: internal environment and external environment.

A. Internal Environment

Organizations have their own environment consisting of many forces situated within organization which is known as internal environment. Factors of internal environment are controllable. Internal environment of the business provides strength and weakness to it. The internal environment of the organization consists of following factors:

i. Organizational resources: Employees are the most important part of organizations. Employees are directly involved in planning policies and implementing such policies. They have vital role to coordinate the other resources effectively. Management can develop human resources by providing trainings and planning the utilization and maintenance policies. Beside human resources technology, capital, raw materials etc. are other important resources influencing organizational effectiveness and productivity. Availability of such resources provides the strength where the shortage of the resources provides weakness.

ii. Organization structure: The overall framework of organization's roles, rules, and hierarchy and authority-responsibility system affects the organization objectives. It also includes the departmentation process, interrelation of different units, groups and individuals to each other. Formal and informal organization structure affects the role and authority of an organization. Organizational structure is the key factor for employee motivation and hence organizational success.

iii. Organization culture: Culture includes the shared norms beliefs and values that guide the employee's behavior in organization. It helps new members to understand about the goals, objectives, functions, operating system of the organization. Culture provides the shape for the overall effectiveness of the organization. Organizational cultural has a powerful influence on the process of organizational change and decision making.

iv. Organization goals and principles: Every organization has specific goals which are desired outcomes of that organization. Each activity of organizations is conducted within the framework of goals. Policies are general guidelines for managerial decision making. These policies are developed by top management of organizations. Organizational goals, objectives, policies, are also an important factor of business environment.

v Other factors: Trade union and its activities affect the organizational activities. They want to reduce the working hours and to increase the financial as well as non-financial facilities to employees. Share holders also influence the business environment as they demand more dividends as quickly as possible. Likewise, communication systems, natural of products, size of organization, leadership style, control system, etc. are also the internal factors of business environment.

B. External Environment

External environment is composed of the factors consisting beyond the organizational scope. They cannot be controlled by organizational management. External environment provides opportunities and threats. External environment further can be classified into two parts i.e. task and general environment described as below:

a. Task environment: An organization is formed with many stakeholders like customers, suppliers, competitors, financial institution, distributors and other interested groups. Such factors can affect the organizational activities positively as well as negatively. These factors of the organization which lie just beyond the organization form task environment. They are called factors of task environment as they affect to the task or activities of the organization. The task environment can be controlled to some extent by an organization. The main components of task environment are as follows:

i. Customers: The main focus of an organization, the customers, purchase the products of that organization. Organization should understand the customers' wants and needs to satisfy them. As their interest, desire and wants are changing according the changes in fashion, organization should develop suitable products to satisfy them. Satisfied customers are the property of an organization. They can be used as effective source of information required to innovate new products. 

ii. Suppliers and Distributors: suppliers are related stakeholders of an organization who supply the required raw materials, semi-finished goods, human resources. technology, office supplies and other necessary resources. Distributors are also one of the important parts of organization who serve the organization by distributing the products of organization to the customers. Organization should maintain healthy and long lasting relationship to the suppliers and distributors.

iii. Financial institutions: Business organizations frequently require capital for business extension. Organizations receive short-term and long-term fund to meet their financial needs. The terms and conditions of loan agreements, interest rate, other charges etc. are influenced by availability of financial institutions and their regulation.

iv. Interest and Pressure groups: There are several interest group and pressure group around the business organizations. They advocate in favor of society and customer welfare in relation to quality, price, service, environmental protections, human rights and wastage management. Such groups create pressure to the organization in order to make decision in favor of them and their issues.

V. Government: Government can make changes in rules, regulations and act to establish the effective systems. Government policies like liberalization, privatization, centralization, taxation, fiscal etc. directly affect to the business environment. Its regulation to the business is also one of the important facets in business environment. 

vi. Competitors: Business organization must face the competitions which is an inevitable part of task environment in the present age of globalization. Intense competition decreases the market proportion while it gives pressure for improving quality and reducing price. Whereas low level of competition creates more congenial situation to the business. Therefore, managers should understand the level of competition, potentiality of increasing competition and make the business policies.

b. General Environment: The general environment is the main part of external environment. It is the set of broader forces in organization surroundings. These factors are located outside the organization and cannot be controlled by the organization. They influence continuously to the organizational activities and provide similar effects to all business organizations. The major external environmental factors are explained below:

i. Economic environment: The economic environment of business is largely determined by economic system of the country. The major factors of economic environment are economic dimensions of country, monetary, fiscal and economic policies, role of private sector, business cycle, condition of capital market and effects of globalization, etc.

•  Economic system: There can be three modes of economy in world capitalistic, socialistic and mixed economy. Capitalistic is free and open a market economy in which the role of private sector remains major. There may be fewer barriers for opening and closing the firms. Every one works for profit and they can hold unlimited property. But socialist is closed market economy in which government enterprises play an important role. In closed economy, private sector cannot operate their business competitively. In mixed managed market economy, there is proper combination of private and public sector. All these forms of economy have positive and negative impacts to the business entities separately.

•  Economic policy: A country may have many policies which are directly or indirectly related to the business organizations. Fiscal policy, monetary policy, commercial policy, industrial policy, trade and transit policy, privatization policy, employment policy, etc. are important policies for the business organizations. Fiscal policy determines tax policy and public expenditure towards other area of economy. This policy is important for of tax limit and employment creation which directly affects to the business. Monetary policy determines and manages the money supply, inflation rate, interest rate controlling measures of banks and financial institutions etc.

•  Economic condition: Business organizations economic environment is affected by the economic conditions of that country. Economic growth rate, purchasing power of people, per capita income, size and nature of economy, business cycles,

•  Other factors: Judicatory system of country, role of political parties, political stability, condition of political and human rights, etc. also influence the organizational activities availability and development of capital, developing stage of national economy, etc. are the important factors which affect business activities of an organization. Globalization economic situation: An organization's economic environment is affected by the globalization and international economic scenario as well. Economic environment is affected by the internal growth rates and inflation rates activities of regional and international economic associations, and other international incidents. World Trade Organization (WTO), South Asian Free Trade Area (SAFTA), European Union (EU), International Monetary Fund (IMF), World Bank (WB), etc. can play effective role in economy and hence in the organizational activities.

ii. Political environment: Political system of country, role of political parties, constitution, bureaucratic structure, foreign affairs policy, ideology of the ruling government, political stability, condition of human rights and political rights, government-business relationship, etc. can play a significant role to the business activities as the factors of political environment. It is an important external force which affects the organizational activities in many ways. dimension of the general environment refers to the relationship between the government and business. It is important because political and legal systems partially define what an organization can do and cannot do and affects to business organization should undertake political risk analysis price to investing starting a new project or expansion of existing business. The major component of political environment are explain below: 

•  Constitution of country: It is the most important legal document of the state which determines the fundamental rights of people. It sets the power limit of different right to the citizens. Every business organization must consider these rights and constitutional provisions while making the organization strategies.

• Political system: Political system of country affects to the general activities of the organization. It consists of ideological forces, political parties and their role, election system, role of political institutions. These factors can play a significant role for making and changing the laws, rules and regulations. There can be autocratic or democratic political system in country but latter is favorable for the organizational development. A stable and efficient political system can influence the growth of the organization.

• Separation of power: Generally every political system comprises three major branches legislature, executive and judiciary. These three branches are interrelated and interdependent. Legislature makes laws, approves the budgets, indirectly controls the government and amends the constitutions if required. The executive body is government that is formed through the legislature. It governs and handles day to day activities of country. Judiciary system of country ensures the implementation of laws and rules determined by legislature. The relationship and power provided to these bodies affects the activities of organization.

• Government-business relationship: Government and business organizations are interrelated and they should have better relationship. Business organization can help the government by supporting their programmes. Government can manage the basic needs of business like infrastructure development and other facilities. Government plays vital role in promoting or discouraging any specific business in the country.

• International political events: The general environment of business organizations can also be affected by the international political activities and events. Political system of the neighboring countries, international political incidents, etc. indirectly affects the organizational environment.

ii.  Social-cultural environment: Organizations are established in the societies. They use the social resources and conduct activities in society. Nowadays the growing concern of social responsibility has increased the additional pressure to the business. As other factors, social factors also provide positive and negative influence to the business. Social environment is constituted of social institutions, attitudes and beliefs, religion, language, culture, education level, class system, desire expectations of people in a given society, values, norms and culture of people, etc. Socio-cultural environment of the society is composed of people and their culture. Socio-cultural factors influence the policies, priorities and activities of organization. A business organization cannot operate its business against the socio-cultural realities. The activities of business organization are affected by problems of poverty and illiteracy; family system, culture, religion, traditions, life styles, etc. So, organization should manage their overall activities considering these forces of socio-cultural environment. The major components of socio-cultural environment are as follows:

• Social institutions: Structure and process of social organization can affect the organizational activities. Family is one form of social institution based on kinship. Sport clubs, musical groups, etc. are organizations based on the free association of individuals. Structure of such organizations has been changing with the changes of social and economic factors. So, organization should adjust their environment with the change of social institutions.

• Demographic factors: Business organizations are affected by the demographic forces of society. Size and distribution of population, age mix, migration rate, urbanization rate, population growth rate, etc. also are important components of business organizations.

• Attitudes and Beliefs: Attitudes mean a way of thinking or behaving toward a person, object, idea or activity. Beliefs are descriptive thoughts about something based on knowledge, opinion or faith. Organization is strongly influenced by the attitudes and beliefs of targeted people i.e. customer.

•  Religion and Language: Religion is a major influencing force for shaping the attitudes, beliefs, motivations and values of culture. Culture and festival are also related to the religion. Language is a prominent part of culture.

•  Social class: It is the rank within a society determined by its own members. Society can be classified into three classes: upper class, middle class and lower class. Members of same class people may have same values, interest, behavior and purchasing power. The need of various social classes differs because of economic strengths. So, business organization should produce goods and services to meet the requirements of specific social class.

• Other factors: The general business environment is affected by many other social-cultural factors like life style of society, literacy rate, superstations, cast systems, etc.

iii Technological environment: Every organization must use certain technology to convert input into outputs. Technological environment includes the innovation capacity of organization, tools and techniques, technology transfer policy, availability of ICT, Research and Development activities etc. Technology consists of skills, methods, system, techniques and equipments involved in production, promotion and distribution process. Organization having new technology can produce cheaper and quality products than the old technology. The major components of technological environment of a business organization are explained as follows:

• Level of technology: Every organization cannot use same level of modern technology. It differs from organization to organization depending upon the size, nature and economic conditions of organization. They can choose either labor-based or machine- based technology or the proper mix of both though there are computerized and robotic technologies as well. To use the appropriate level of technology, organization needs not only skilled HR to operate it but also the sufficient capital to own it. Advanced technology like computerized and robotics influence the organizational activities as they produce better products at minimum cost of production.

• Pace of technological change: Technology once adopted cannot be changed quickly as it requires high capital and trained human resources. But if the technology is changing fast, the adopted technology may be outdated. Then the organizations feel pressure whether new technology should be adopted or continue the using one.

• Acquisition or making policy: Organization can make new technology or buy it from market. If they have policy to develop new product themselves, they need to enhance R/D capacity. Management should make strategic decisions considering the cost, productivity, quality, social effect and flexibility while acquiring the new technology.

• Technology transfer policy: Technology can be transferred from one country to another country but technology transfer policy can strongly affect on it. There may be a number of regulations and limitation to transfer the technology. Method of transferring technology are FDI, globalization, strategic alliance, technical assistance, etc. Countries specify specific methods of technology transfer which strongly affect the goal activities of organization.

• ICT: The most important and recently developed technology is ICT, which can impact business activities significantly. Use of computer and new communication technology makes easier for processing and transmitting the data. It also affects the organizations general environment strongly