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An Analysis of Business Environments and Organizational Structures

Discusses the impact of economic, social, and legal factors on business environments and organizational structures.

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    An Analysis of Business Environments and Organizational Structures: Economic, Social, Legal Influences, and Forms of Business Organizations Question : - Describe the basic environments (legal, social , economic) in which a business operates. Solution : - BUSINESS ENVIRONMENT The business has got two dimensional relationship with the environment. On the one hand it affects the social, political and economic environment and on the other hand it is affected by country’s social, political, economic and legal environment. The competent and successful management must be capable of adapting to the environment. The knowledge of the environment helps in capitalizing emerging opportunities, activating management and image building of the organization. COMPONENTS OF BUSINESS ENVIRONMENT Business, these days is vitally affected by the economic, social, legal, technological and political factors. These factors collectively from business environment. Business environment as such is the total of all external forces, which affect the organization and operations of business. The environment of an organization has got internal, operational and general levels. Managers must be aware of these three environment levels, their relationship and importance. ECONOMIC BUSINESS ENVIRONMENT

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    The successful businessman visualizes the external factors affecting the business, anticipating the prospective market situations and makes suitable plants to get the maximum with minimum cost: 1. Market situations – The business produces goods according to the demand. If the demand of the commodity increases, its price also increases, so the profit margin also increases. Consequently, production of the commodity should be increased. 2. Sources of Capital – If the capital is easily available, business activities flourish. In case, capital is not available business cannot expand. This is why, during pre - independence Indian business could not develop. After independence capital was made available by the government through specialized financial institutions and soft lending policies of the government. Consequently business has developed at faster rates. 3. Income level of the masses – In case, general income level increases in the economy, purchasing power with people increases. Increased demand includes business to produce more and grow faster. Low income level reduces purchasing power resulting in lesser production and slower economic development. 4. Economic policies of the government – The government controls the business in the interest of the public. Licensing by the government, levying excise duty, fixing price of the commodity, providing subsidy to certain industries, factory legislation, policy of nationalization etc. affect situation, size, type and expansion of the business. 5. Changes in the rate of interest – Low rate of interest provides easy capital, so the business grows at faster rate. High rate of interest adversely affects the growth of business.

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    6. Changes in the income tax rates – Low income tax rate promotes business activities. On the other hand, higher rate of interest discourages growth of the business. SOCIAL BUSINESS ENVIRONMENT Consumer’s satisfaction is the foundation stone of successful business. Business has to produce goods according to the needs of the customers. While producing commodities, business has to take into consideration the tradition, customs, belief, value, lifestyle, habits, education, thinking, behavior and income level of the people. Changes are must. It has to come slowly and quickly. The management should not ignore these inevitable changes. After independence our traditions, customs, habits have been changing continuously due to expansion of education. Increase in the income level has increased the demand for television sets, fridges, scooters, cars and other goods of comforts and luxuries. There has been change in the standard of living of the people. The competent, efficient and successful manager takes into consideration the various external and internal factors affecting business, formulates effective policies and leads the enterprise towards prosperous future. Social Environment affecting Business i. The size, composition and distributions of population between males, females, rural, urban, rich and poor etc. ii. Social customs, beliefs, values, lifestyle, behavior of the people etc.

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    iii. Education level of people. iv. Social consciousness regarding corruption, pollution, status of minorities, women and media. v. Level of consumers satisfaction. Examples i. Attitude towards equality between male and female leads to equal pay for equal work for both males and females. ii. Increase in the demands of nourished food due to health consciousness. iii. Public opinion towards high prices. iv. Social consciousness about pollution problem generated by industry. LEGAL BUSINESS ENVIRONMENT Legal environment consists of legislation passed by central and state governments. It prescribes rules and laws which must be followed by business units. These days the government regulates the business according to its economic, trade and industrial policy. Due to its economic policy the government restricts certain industry and trade to public sectors. In order to encourage private sector, we are now adopting the policy of liberalization, globalization and privatization. Our monetary and fiscal policies also affect business activities. It shows, that the government regulates the business according to its defined priorities.

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