CHAPTER VI BUSINESS ENVIRONMENT ANALYSIS

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1 CHAPTER VI BUSINESS ENVIRONMENT ANALYSIS 6.1 INTRODUCTION A business enterprise is a part of the society and the business environment has a direct relationship with the policy of the enterprise. The environment may impose several constraints on the enterprise as it has a tremendous impact and influence. The enterprise on the other hand, has very little control over its environment. Therefore, the success of an enterprise depends to a very large extent on its adaptability to the environment. The term business environment generally refers to the external environment and includes factors outside the firm which can lead to opportunities or threats to the firm. Although there are many external factors, the most important factors are suppliers, customers, marketing intermediaries, public, competitors, social, technological, economical, political, international and natural. The external environment can be divided into two namely, micro environment and macro environment. 226

2 6.2 MICRO ENVIRONMENT: The micro environment comprises the forces close to the company that affect its ability to serve its customers. This includes the suppliers, customers, marketing intermediaries, public and competitors Suppliers: These are the firms and individuals who supply the inputs like raw materials and components to the enterprise. Development in the supplier s environment can have a substantial impact on the company s business and marketing operations. Supply shortages or delays, labour strikes and other events can affect sales in the short run and damage customer goodwill in the long run. It is very risky to depend on a single supplier. Hence, the enterprise should have multiple sources of supply Customers: Every business enterprise must study its customer markets closely. The success of an enterprise depends upon its ability to create and sustain markets viz., consumer markets, business markets, reseller markets, Government markets and international markets. A consumer market consists of individuals, and households. They buy goods and services for 227

3 personal consumption. Business markets consist of producers and organizations who buy goods and services for further processing or for use in their production process. Reseller markets buy goods and services with a view to resell at a profit. Government markets consist of Government agencies who buy goods and services with a view to produce public services or transfer the goods and services to others who need them. International markets consist of foreign buyers, including consumers, producers, resellers and governments. Each customer market has its own special characteristics. Hence, the seller should study each type of market carefully Marketing Intermediaries These are the firms that help the enterprise to promote, sell and distribute its goods and services to the final buyers. They include middlemen, physical distribution firms, marketing service agencies and financial intermediaries. Middlemen such as wholesalers and retailers buy merchandise and resell. Physical distribution firms such as warehouses and transportation firms help the company to stock and move goods from their point of origin to their destination. Marketing service agencies such as marketing research firms, advertising agencies and marketing consulting firms help the company in targeting and promoting its products to the right markets. Financial intermediaries such as banks, credit companies and 228

4 insurance companies help in financial transactions or insure against the risks associated with the buying and selling of goods. The company has to develop strong relationships with all these for the successful operation of its business Competitors: The success of an enterprise depends upon its ability to satisfy the needs and wants of consumers better than its competitors. Hence, the business concern should gain strategic advantage by positioning its good strongly against the competitor s goods in the minds of consumers. The strategists should examine the state of competition the firm must face. The following three factors should be analyzed: entry and exit of major competitors, substitutes and complements for current products/services and major strategic changes by current competitors Public: A company s environment is surrounded by several types of public. There are several types of public, such as financial public, media public local public, general public and internal public. Financial public includes banks, financial institutions and stock holders. They influence the 229

5 company s ability to obtain funds. Media public consists of newspapers, magazines, radio and T.V. They carry news, features and editorial opinion. Local public is constituted of neighbourhood residents and community organizations. An enterprise should consider the general public s attitude towards its products and services. The internal public of an enterprise consists of its workers, managers, volunteers and the board of directors. Some organizations use newsletters and other means to inform and motivate their internal public. It is to be noted that all these groups are not threats to business; some of the actions of the public may create problems for the business while others may create opportunities. 6.3 MACRO ENVIRONMENT: The macro environment consists of the larger societal factors that affect the whole micro environment. They are more uncontrollable than the micro environmental factors. Let us examine the important macro environmental factors Sociological Environment: Sociological environment influence on the business to a greater extent. Sociological environment denotes the influence made by certain 230

6 factors which are beyond the control of the business. Such factors are people s attitude to work and wealth, role of family, education, ethical issues and social responsiveness of business Technological Environment Technology affects the manner in which the resources of the economy are converted into output. Technological changes affect production methods, processes and the raw materials used in the manufacture of a product. Technological changes may enable a firm to achieve its objectives or threaten the existence of the firm. A firm which is not able to cope with changing technology may not survive Economic Environment: Economic environment refers to all those economic factors which have a bearing on the functioning of a business unit. Business depends on the economic environment for all the needed inputs. It also depends on the economic environment to sell the finished goods. Naturally, the dependence of business on the economic environment is total and it is not surprising because, as it is rightly said business is one unit of the total economy. 231

7 6.3.4 Political Environment: The influence of political factors on business is enormous. The political factors may have international, national as well as regional implications. The political system prevailing in a country decides, promotes and controls the business activities of that country. A political system which is stable, honest and efficient is a primary factor for the growth of business. If there is political instability it will have a telling effect upon the business policies of a firm. Political factors may cause either opportunities or threats to a business firm International Environment: The international environment is very important for certain categories of business, for industries directly depending on imports or exports and import-competing industries. A liberalization of imports may help some industries which use imported items, but may adversely affect importcompeting industries Natural Environment: Geographical and ecological factors such as natural resource endowments, weather and climatic conditions, topographical factors, 232

8 location aspects in the global context all influence business. Today, environmental pollution and the disturbance of the ecological balance have caused great concern, Government policies aim at the preservation of environmental purity, ecological balance and conservation of non-replenish able resources etc. These have resulted in additional responsibilities and problems for business. 6.4 MICRO ENVIRONMENTAL FACTORS AFFECTING MSMES With a view to identify the dominant micro environmental factors, factor analysis has been applied. Factor analysis by Principal Component Method on 20 variables of micro environment have been carried out and obtained the following results. The justification of factor analysis on the sampling domain with adequate numbers is significant using Kaiser-Meyer-Olkin Measure of Sampling Adequacy along with Bartlett s Test of Sphericity and is furnished in Table

9 Table 6.1 KMO and Bartlett s Test for Micro Environment Kaiser-Meyer-Olkin Measure of Sampling Adequacy..782 Bartlett's Approx. Chi-Square Test of Df 190 Sphericity Sig..000 Source: Output of Analysis From the table it is found that Kaiser-Meyer-Olkin Measure of Sampling Adequacy is.782 and chi square value is for 190 degrees of freedom. These statistical values are significant at 1% Level. This draws the conclusion that the factor analysis applied on the 20 variables of micro environmental factors affecting the MSME units. 20 variables were identified by researcher form the review and were formulated into a table form to obtain rating for each from each respondent. The variables were identified using factor analysis. Rotated Component Matrix on factor analysis for micro environmental factors is presented in Table

10 Table 6.2 Micro Environment Component Matrix a Factors % of variance explained Component 1 Raw Materials are available on credit basis Customers have high purchasing power DIC is always supportive to the enterprise Raw materials are Locally available Sufficient finance is available from other private institutions Warehouse and Transportation firm always help to move goods to the destination Sufficient quantity of Raw Materials available Customers have first preference to our product/services Service of middlemen such as wholesalers and retailers are always beneficial Products/Services are heavily availed by different types of customers Marketing service agencies always help and promote the product/services at the right markets High transportation cost Banks are willing to provide loans without delay Interest rate for bankers loan is low We satisfy our customers much better than competitors Advertising costs are reasonable Sufficient suppliers of Raw Materials available Sufficient agencies have been functioning in providing training and entrepreneurship awareness programme Pricing of competitors are not affecting Banks liberal credit policy Extraction Method: Principal Component Analysis a 1 Components Extracted 235

11 From the table 6.2 the analysis shows that 20 micro environmental factors were analyzed, namely Sufficient suppliers of raw materials available, Products/Services are heavily availed by different types of customers, Service of middlemen such as wholesalers and retailers are always beneficial, Banks are willing to provide loans without delay, Pricing of competitors are not affecting, Sufficient quantity of raw materials available, Customers have high purchasing power, Warehouse and transportation firm always help to move goods to the destination, Interest rate for bankers loan is low, We satisfy our customers much better than competitors, Raw materials are available on credit basis, Customers have first preference to our product/services, Marketing service agencies always help and promote the Product/Services at the right markets, Banks liberal credit policy, Locally available, Advertising costs are reasonable, Sufficient finance is available from other private institutions, High transportation cost, DIC is always supportive to the enterprise, Sufficient agencies have been functioning in providing training and entrepreneurship awareness programme. Out of the 20 factors analyzed, DIC is always supportive to the enterprise with a value of is having a variance of per cent is considered most important, followed by Raw materials are available on credit basis with a value of is having a variance of per cent. 236

12 The total percent of variance explained is 90 per cent. These first six factors accounts for per cent of the variance. All the remaining factors are not dominant. 6.5 MACRO ENVIRONMENTAL FACTORS AFFECTING MSMES With a view to identify the dominant macro environmental factors, factor analysis has been applied. Factor analysis by Principal Component Method on 42 variables of macro environment have been carried out and obtained the following results. The justification of factor analysis on the sampling domain with adequate numbers is significant using Kaiser-Meyer-Olkin Measure of Sampling Adequacy along with Bartlett s Test of Sphericity and is furnished in Table 6.3. Table 6.3 KMO and Bartlett s Test for Macro Environment Kaiser-Meyer-Olkin Measure of Sampling Adequacy..878 Bartlett's Test of Sphericity Source: Output of Analysis Approx. Chi-Square Df 210 Sig..000 From the table it is found that Kaiser-Meyer-Olkin Measure of Sampling Adequacy is.878 and chi square value is for

13 degrees of freedom. These statistical values are significant at 1% Level. This draws the conclusion that the factor analysis applied on the 42 variables of macro environmental factors affecting the MSME units. 42 variables were identified by researcher form the review and were formulated into a table form to obtain rating for each from each respondent. The variables were identified using factor analysis. Rotated Component Matrix on factor analysis for macro environmental factors is presented in Table 6.4. Table 6.4 MACRO ENVIRONMENT Rotated Component Matrix a Factors % of variance explained Component Educational institutions are providing entrepreneurial education Entrepreneurs hailing from entrepreneurial family are more efficient MSME provide employment to more people Those who are having leadership qualities run the business successfully Those who are having innovative ideas run the business successfully MSMEs acts as ancillary units Those who have secular idea have good business Those who have time conscious in satisfying the needs of their customers have good business Climatic conditions are supportive to the enterprises Contd

14 Factors % of variance explained Component Technical education system is highly effective Computers in the MSMEs Latest communication facilities are more effective than traditional Changes in the regulatory framework of MSMEs give boost to the industries MSME provide increase in per capita income Those who follow business ethics have a good business Those who have technical knowledge run the business effectively MSME increase the standard of living of the people MSME provide increase in national income Growth in MSME gives growth in national level through Accelerator Effect Growth in MSME gives growth in national level through Multiplier Effect MSMEs leads to development of Infrastructure MSMEs leads to removal of regional imbalances/ removal of concentration of economic resources MSMEs leads to more credit creation and disbursement Government policies favor new and existing firms Municipalities are always prompt while issuing licenses and permits to enterprises Electricity Board are prompt while issuing connection to the entrepreneurs Stable Government provides favorable policies to MSMEs Pollution control board are prompt while issuing certificates to the entrepreneurs Enterprises are not affected by globalization MSMEs are not affected by global recession FDI policy is not harmful to the enterprises Export promotion becomes easy Contd

15 Factors % of variance explained Component EXIM policy of the Government greatly encourage MSMEs Bilateral Trade agreements encourages MSMEs Foreign exchange flow becomes easier Foreign exchange trade becomes very easy MSME policies makes environmental friendly Knowledge of current technology is available Environmental awareness of the public is not against new or existing firms Environmental regulations favor the enterprises Conservative use of natural resources Efficient use of natural resources Extraction Method: Principal Component Analysis 1 components extracted 1 From the table 6.4 the analysis shows that 42 macro environmental factors were analyzed, namely Educational Institutions are providing entrepreneurial education, Knowledge of current technology is available, changes in the regulatory framework of MSMEs give boost to the industries, Government policies favour new and existing firms, Enterprises are not affected by globalization, MSME policies make environmental friendly, Entrepreneurs hailing from entrepreneurial family are more efficient, Technical education system is highly effective, MSME provide increase in per capita income, Municipalities are always prompt while issuing licenses and permits to enterprises MSMEs are not affected by global recession, Climatic conditions are supportive to the enterprises, Those who are having innovative ideas run the business successfully, Computers in the MSMEs, 240

16 MSMEs acts as ancillary units, EB are prompt while issuing connection to the entrepreneurs, FDI Policy is not harmful to the enterprises, Environmental awareness of the public is not against new or existing firms, Those who have leadership qualities run The business successfully, Latest communication facilities are most effective than traditional, MSME provide employment to more people, Stable government provides favourable policies to MSMEs, Export promotion becomes easy, Environmental regulations favour the enterprises, Those who have technical knowledge run the business effectively, MSME increase the standard of living of the people, Pollution Control Board are prompt while issuing certificates to the entrepreneurs, EXIM Policy of the Government greatly encourage MSME, Conservative use of natural resources, Those who follow business ethics have a good business, More employment opportunities are given, Bilateral trade agreements encourage MSMEs, Those who have secular idea have good business, Growth in MSME gives growth in national level Through accelerator effect, foreign exchange flow becomes easier, Those who have time conscious in satisfying the needs of their customers have good business, Growth in MSME gives growth in national level through multiplier effect, Foreign exchange trade becomes very easy, MSME leads to development of infrastructure, MSME leads to more credit creation and 241

17 disbursement, Efficient use of natural resources, MSME leads to removal of regional imbalances/removal of concentration of economic resources. Out of the factor analyzed, MSME provide employment to more people with a value is having a variance of ( per cent) is considered most important, followed by Entrepreneurs hailing Form entrepreneurial family are more efficient with an alpha is having a variance of ( per cent). The total percent of variance explained is 90 per cent. The eleven factors accounts for per cent of the variance. All the remaining factors are not dominant. 6.5 CONCLUSION In this chapter, the business environmental factors such as micro environment and macro environmental factors which affecting the MSMES in the Tirunelveli Municipal Corporation has been analyzed with the help of factor analysis. The next chapter deals with the summary of findings, conclusions and suggestions. 242

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