Environmental Factors of Small Scale Industries

INTRODUCTION
A business firm is an open system. It gets resources from the environment and supplies its goods
and services to the environment. There are different levels of environmental forces. Some are
close and internal forces whereas others are external forces. External forces may be related to
national level, regional level or international level. These environmental forces provide
opportunities or threats to the business community. Every business organization tries to grasp the
available opportunities and face the threats that emerge from the business environment.
The term business typically refers to the development and processing of economic values in
society. Normally, the term is applied to portion of economic activities whose primary purpose is
to provide goods and services for society in an effective manner. It is also applied to economics
and commercial activities of institutions which having other purposes.

Business may be defined as the organised effort by individuals to produce goods and services to
sell these goods and services in a market place and to reap some reward for this effort.
Page 1

Environmental Factors of Small Scale Industries

Functionally, we may define business as those human activities which involves production or
purchase of goods with the object of selling them at a profit margin.
Business organizations cannot change the external environment but they just react. They change
their internal business components (internal environment) to grasp the external opportunities and
face the external environmental threats. It is, therefore, very important to analyze business
environment to survive and to get success for a business in its industry. It is, therefore, a vital
role of managers to analyze business environment so that they could pursue
effective business strategy.
A business firm gets human resources, capital, technology, information, energy, and raw
materials from society. It follows government rules and regulations, social norms and cultural
values, regional treaty and global alignment, economic rules and tax policies of the government.
Thus, a business organization is a dynamic entity because it operates in a dynamic business
environment.

Page 2

Environmental Factors of Small Scale Industries

Systems Approach of Business Environment
All the systems are subsystems of other system in the nature except the supra-system or cosmos.
We individually are also the part of our family. Formal organization or business is made of group
of people for specific purpose. Very similar to the organization we personally are the members of
our family and that is a component of a broader society. The same society is a component of a
nation. Group of nation with similar interest are grouped in regional alliances such as SAARC
and EU. World economy is made of with all these regional alliances and network.
In this approach, nothing is in isolation. All are integrated and interlinked. Organizations are
open systems because they get resources from others and give output to others. A business deals
with number of business environmental forces. These forces from where a business gets
resources and supplies resources, forces that influence the business operation, and factor that
present opportunities and threats are taken as the business environment. In this sense, a business
can be viewed as an internal system or controllable system of a manager or strategist.
Managers can control their own businesses. Managers can collect resources such as capital,
human, information, idea, land, and equipments. These components are controllable.
Managers can operate their organization and use their decision to run it. Similarly, the output of
the organization is also under their control. But, other broader systems that cover the business
may not controllable.
Group of similar organization becomes an industrial system that comprises business
organizations as its subsystems. Industry level environment is common to all the businesses
running within the industry. A country and its environment is broader system that covers even the
different sectors or industries such as banking, education, health, trade, manufacturing, and
service industries. Therefore, it affects all the business operations inside the nation. Regional
alliances influence the national policy because a country is a subsystem of the regional alliances
such as SAARC and BIMSTEC. Even such regional alliances are also affected by the broader
international systems such as WTO and United Nations. In case of a business, it is a very small
subsystem that should follow the industry norms, national policies, regional agreements, and
global systems.

Page 3

Environmental Factors of Small Scale Industries

Components of Business Environment
Business environment of the firms/company or organisation can be classified into two broad
categories:
Internal Environment
External Environment
Component of Business Environment

A variety of factors can affect company's business. Such factors can be national level, regional
level, and international level environmental forces. These factors are also known as societal
factors or macro level business environment factors. In general, five forces are taken as the
general environmental factors namely economic, socio-cultural, political-legal, technological,
and international. Some writers included natural environment as a distinct component but the
growing social awareness on natural environment shows that this component can be included
into the socio-cultural environment.
Set of these environmental factors is mostly referred by first four factors PEST (Political-legal,
Economic, Socio-cultural, and Technological). The logic behind this is pervasiveness of the
international environment because it affects all these four sectors. Fast growing technological
development, outsourcing business, emergences of multinational companies, and global and
regional alliances have made the world a global village.

Page 4

Environmental Factors of Small Scale Industries

In this context, effect of international environment in four major components of general

environmental factors is natural. Information Communication Technology (ICT) revolution and
globalization are to be considered very important effect in today's international business
environment. Growing multinational companies and their influence in one national economy is
clearly evident. Use of automated technology and e-commerce has replaced many of the manual
works and workplace. World Trade Organization and its growing members including Nepalese
147th membership in Cancun summit has placed new opportunities and threats to the developing
countries like Nepal. South Asian Association for Regional Cooperation (SAARC) is active
since twenty years and it recently declared South Asian Free Trade Area (SAFTA) charter.
Furthermore, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation
(BIMSTEC) and its future potentialities presented new prospectus to the local and international
business entities in this sector.

CHARACTERISTICS OF BUSINESS ENVIRONMENT

Page 5

Environmental Factors of Small Scale Industries

Business environment characteristics will be indicated that major challenges, opportunities,
threat and weakness of the business.
Characteristics of Business Environment

Environment is Complex
Business environment principally consists of a number of factors, events conditions. These are
influenced to different departmental source in the organisation. These conditions do not exist in
isolation and create entirely new set of influences which interact with each other. This is difficult
to influence to organisation. All these factors have to be considered as environment analysis is
complex and rigid and totally very difficult to grasp by the functional manager and top level
employees in the organisation.
Environment is Dynamic
Business and company environment is constantly changing in different nature. Micro and macro
environment factors are influenced to business. It impact to change on the business conditions.
Dynamic environment is flexible and dynamic nature in company. This is causing due to change,
strategic manager can shape strategy and formulate short term and long term objectives.
Environment is Multifaceted
Strategic observer can shape and observe different characteristics of environment. Strategic
observer observes a particular change or latest development in the business. It may be viewed as
different opinions from different observers in the organisation. These things are frequently seen
when the development happens. All are happy to welcome it and think as an opportunity for the
company, even also as threat to company.

Page 6

Environmental Factors of Small Scale Industries

ENVIRONMENTAL INFLUENCES ON BUSINESS
The term Environmental analysis is defined as the process by which strategists monitor the
economic, governmental, legal, market, competitive, supplier, technological, geographic, and
social cultural settings in order to determine opportunities and threats to their
firms/company/organisation.

According to Barry M. Richman and Melvyn Copen

Environment factors of constraints are largely if not totally external and beyond the control of
individual industrial enterprises and their arrangements. These are essentially the givers within
which firms and their managements must operate in a specific country and they vary, often
greatly from country to country.
According to Glueck and Jauch
The environment includes outside the firm which can lead to opportunities for or threats to the
firm. Although, there are many factors, the most important of the sectors are socioeconomic,
technical, supplier, competitors, and government.
These definitions clearly reveal the following important factors:
Strategist looks on the environmental changes while to analyse the threats of the business along
with searching and offering immense opportunities to business enterprises in the market.
A successful business enterprise has to identify, appraise and respond to the new dimensions of
various opportunities and threats in its internal and external environment.
Successful businesses not only recognise activities but also the different elements in the
environment.
Various Approaches of Identifying and Reporting Environment Components
Page 7

Environmental Factors of Small Scale Industries

There are many distinct but similar approaches available in categorizing business environment
components. Jauch & Glueck (1988) identified business environment components into three sets
namely general, industry level, and internal. This concept became very popular and holistic
among the many academicians. They identified five major components including political-legal,
socio-cultural, economic, technological, and climatic factors of general business environment.
Industrial and general level business environment are grouped into external business
environment.
Many writers coined Political, Socio-cultural, Economic, and Technological factors as PEST.
Political and legal components are sometimes separated and PESTEL is also used as an acronym.
Some others address these external environment components as Social, Technological, Political,
and Economic (STEP) factors. Including natural environmental factors into this set social,
technological, economic, environmental and political (STEEP) model is presented. The same
natural environment is also taken as a distinct component; therefore, it is sometimes addressed as
Socio-cultural, political legal, Economic, Natural, and Technological (SPENT). Cartwright
identified an acronym SPECTACLES to address the set of ten external environment components
such as Social, Political, Economic, Cultural, Technological, Aesthetic, Customer, Legal,
Environmental, and Sectoral. External business environment are grouped into remote
environment for general and operating environment for task or industry level business
environment.
However, it is important not to just list PESTEL factors because this does not in itself tell
managers very much. What managers need to do is to think about which factors are most likely
to change and which ones will have the greatest impact on them i.e. each firm must identify the
key factors in their own environment. When analysing companies such as Sony, Chrysler, Coca
Cola, BP and Disney it is important to remember that they have many different parts to their
overall business - they include many different divisions and in some cases many different brands.
Whilst it may be useful to consider the whole business when using PESTEL in that it may
highlight some important factors, managers may want to narrow it down to a particular part of
the business (e.g. a specific division of Sony); this may be more useful because it will focus on
the factors relevant to that part of the business. They may also want to differentiate between
factors which are very local, other which are national and those which are global.

Page 8

Environmental Factors of Small Scale Industries

Macro/Remote Environment
Macro environment is largely external to the business enterprise. Macro environment factors are
uncontrollable factors and beyond the direct influence and control of the organisation. Its factors
are powerfully influence to its functions. External environment consists of individuals, groups,
agencies, organisations, events, conditions and forces. These are frequently contacted by the
organisation for its functions. It establishes good interaction and interdependent relations in form
of conducts business transitions. Proper designing and administration of macro environment
enable appropriate strategies and policies to cope with and make changes.
Macro Environment Elements

The macro/remote environment principally consists:

Economic environment
Political environment
Legal environment
Socio-cultural environment
Demographic environment
Natural environment
Physical and technological environment
Technological Environment
Global or International environment

Page 9

Environmental Factors of Small Scale Industries

PESTEL Analysis of the Macro Environmental Forces

Page 10

Environmental Factors of Small Scale Industries

ECONOMIC ENVIRONMENT
The economic environment constitutes of economic conditions, economic policies, and the
economic system that is important to external factors of business.
The economic conditions of the country include:
Nature of the economy of the country.
The general economic situation in the region, conditions in resource markets like money,
material, market raw material components, services, supply markets and so on which influence
the supply of inputs to the organisation, their costs, quality, availability and reliability of supply
of products and services.
It determines the economic strength and weakness in the market.
Purchasing power of the individual depends upon the economic factors like current income,
price, savings, circulation of money, debt and credit availability.
People income distribution pattern analyses the market possibilities and impacts on enterprise.
Development process of the country.
Availability of economic resources of the country.
The level of the economic income of the country.
The distribution of income and assets of the country.
Public finance of the country.
These are the very important determinants of business strategy in the organisation for
formulating, implement and controlling of economic policies. Economic environment refers to
the nature and direction of the economy within which business organisation are to operate. For
instance, in developing country, the low income may be reason for the very high demand for the
product and services of the business.
In countries where the investments and income are steadily and rapidly rising, business prospects
are generally bright and further investments are encouraged. In developed economics,
replacement demand accounts for a considerable part of the total demand for many consumers
durables where as the replacement demand is negligible in the developing countries.
Money is the lifeblood of any business organisation and the economic system. The economy
consists of micro-economics and macroeconomics. Micro and macro elements are important

Page 11

Environmental Factors of Small Scale Industries

from the point view of strategic decisions. Strategist must scan, monitor, forecast, and assess the
following critical elements of the macro and micro economic environment:
Economic system
Nature of the country economy
The monetary and fiscal policies
Autonomy of the economy
Functions of economics
Factors of productions
Economic trends and structures
Economic policy statements and structure
Economic legislation
Economic problems
Import and export policy
Tax rates
Interest rates
Government budget deficit
Consumption pattern
Price fluctuations
Global movement of labour and capital
Stock market trends
Coalitions of countries and regional states
Availability of credits
Inflation trends in country
Unemployment trends
Foreign country economic conditions
Petroleum Exporting Countries (OPEC)) policies.
Economic environment encourages liberalisation, privatization and globalization of the economic
policies in the business environment. Every countrys development is based on the economic
environment activities that focus to the development process of the country.

Page 12

Environmental Factors of Small Scale Industries

POLITICAL-LEGAL ENVIRONMENT
Political environment refers political and government and legal environment. It has close
relationship with the economic system and economic policy. For instance; the communist
countries had a centrally planned economic system. Communist government countries laws are
control investment and related matters.
There are number of laws that regulate the conduct of the business. These laws cover matter such
as standards of business and its production and service.
The democratic governments countries laws / act are passed in the parliament. Then they are
regulating rules and regulation of business according to the act.
Political stability, responsibility, political ideology and level of political morality, the law and
order situation, and practice of the ruling party and major purposefulness and efficiency of the
government agencies.
Political agencys nature, its influence to economic and industrial act ivies in the country.
Government policies like fiscal, monetary, industrial, labour, and export and import policies
which are influenced to specific legal enactments and framework towards the business
organisation political legal function and degree of the effectiveness which are influenced to
formulate and implement policy in the legislature.
The political environment is based on the uncertainty, therefore, demographic countries consist
of number of political parties. Political parties arent got clear majority to form a government. In
this situation, industry and commerce collapsed their business activities due to hung government.
The political parties are unable to formulate stable government, it affect and fluctuate the
government policies. Therefore, business organisation and public are needed to the stable
government.

Elements of Political and legal Environment

Page 13

Environmental Factors of Small Scale Industries

There are three important elements are associated with the political and legal environment as
listed below:
Government
Legal
Political
Government
Government policies, rules and regulation are controlling and monitoring the business
enterprises and its activities in the state.
Secondly, the type of government administration of the state and what is the business policy of
state? These things should be evaluated by the strategist from point of view of business.
Strategist should study about the changes in the regulatory framework of the government and
impact on the business.
Government tax policies are critical and affect to the business organisation in the state.
Legal
Sound legal system is the basic requirement for running of the business operating within the
state.
Strategist should be aware of various business laws which are protecting consumers,
competitors, and organisation.
Business organisation should aware of the laws which relevant to companies, competitors,
intellectual property, foreign exchange, labor and so on.
Political
Political system is also influenced to business and its activities.
Political pressure groups influence to government and in this way some extent to control and
regulate business activities within the country.
Recently, special interest groups and political action committee put pressure to business
organisation and to pay more attention towards consumers rights, minority rights and women
rights.
Apart from the sporadic movements against certain products and services and some business
organisation in the state.
SOCIOCULTURAL ENVIRONMENT

Page 14

Environmental Factors of Small Scale Industries

Socio-cultural environment is an important factor that should be analyzed while formulating
company business strategies. If company is ignoring the customs, traditions, tastes and
preferences and education. it can affect the business. It consists of factors which are related to
human relationships and the impact of social attitudes and cultural values. These are bearing on
the business of the organisation.
Business organisation is a successful due to appropriate strategies effective utilization of sociocultural environmental factors. Social cultural environment is an important for MNC. Therefore,
MNC should study of the social cultural activities of the region, where there are introducing their
own business. Socio-cultural factors are beliefs, values, norms and traditions of the society
determine how individuals and organisations should be interrelated.
The difference in language sometimes poses a serious problem, even necessitating a change in
the brand name. The value and beliefs associated with colour vary significantly between different
cultures. For instance, white indication death and mourning in china and Korea; but some
country it expresses happiness and is the colour of the wedding dress of the bride.
Some of the socio-cultural factories are influenced to operating environment of
organisation as outlined:
Social issues like the role of the business in the society, environment pollution, corruption, use
of mass media and consumption of products and services which are offered by the company.
Social attitudes and values issues like social customs, beliefs, rituals and practices, changing
life style patterns and materialism are expectations of society from the business.
Family structure, values and attitudes towards the family and these changes also influence to
business and its operation.
Role of the women, position, nature of responsibilities in society is also influenced to business
and its operation in market.
Educational levels, awareness and consciousness of rights and work ethics of the society can be
influenced to business and its operation.
Social practice, beliefs and associated factors are helpful for promotion of the certain products,
services or ideas, the success of marketing depends to a very large extent, on the success in terms
of changing social attitudes or value systems.
DEMOGRAPHIC ENVIRONMENT
Demography refers to study of the population. Demographic factors are as below:
The population size
Page 15

Environmental Factors of Small Scale Industries

Growth rate of population
Age composition of the population
Family size
Economic stratification of the population
Education levels
Language
Caste
Religion
Race
Age
Income
Educational attainment
Asset ownership
Home ownership
Employment status and location
These factors are the relevant to the business for formulating and implementing of strategy for
controlling and accomplishment of the objectives of the organisation. Demographic factors like
size of the population, population growth, rate, age, composition, life expectancy, family size,
spatial dispersal, occupational status, employment pattern etc., affect the demand for goods and
service.
The growth of population and income result increases demand for goods and services. A rapidly
increasing population indicates that a growing demand for many products. For instance,
developing countries like India, Pakistan, etc; high population growth rate indicates an enormous
increase in labor supply. The occupational and spatial nobilities of population have implications
for business. Labor is easily mobility between different occupations and regions. Its supply will
be relatively smooth and this will be relatively and this will affect the wage rate. If a labor is
highly heterogeneous in respect of language, caste and religion, ethnicity, etc., personal
management is likely to become a more complex task. The heterogeneous population with its
varied tastes, preferences, beliefs, temperaments, etc, gives rise to different demand patterns and
calls for different marketing strategies.

Page 16

Environmental Factors of Small Scale Industries

Business organisation needs to study different demographic issues which particularly address the
following issues as listed below:
What democratic trends which will affect the market size of the different types
of industry?
What democratic trends will represent opportunities or threats?
Domestic Environment Factors of Business
We shall briefly discuss a few demographic factors which are interest of business:
Population Size
Geographic Distribution
Ethnic Mix
Income Distribution
Population Size
Size of population is important either small or large to business organisation. Companies use
population size for critical assessment for customer behavior and changes of the customer
behavior and its impact on business. Important issues are outlined which are related with
population:
It studies the changes in a nations birth rate and family size.
It studies the increase and decrease in the total population.
It also studies the changes effects in terms of rapid population growth on natural resources or
food supplies.
It also studies the life expectancy of infants, youth and old age people.
These issues are very important to company for analysis of demand and supply of products and
services. Healthcare companies role is needful for assessment of the product requirement for
infants, youth, middle age and old age people.

Geographic Distribution
It refers to geographic region and population that shifts from one region of a nation to another or
from village/rural areas to urban areas. This is may be an impact on a companys strategic
competitiveness in market.
Page 17

Environmental Factors of Small Scale Industries

Geographic Distribution issues are outlined:
Location advantage and government support is also very important to company.
In the case, population is shifted from one region to another region. This is the significant
impact on companys qualified workforce and company consider relocation of its skilled human
resources.
Today, working at home concept and electronically on the information highway have also
begun in India in an very small level.
Ethnic Mix
Ethnic mix is also important to company and know eager know changes in ethnic mix in
population. Assessment and implications of ethnic mix is useful for company and its works force.
Ethnic issues are outlined:
Company should know the changes in the ethnic mix and its impact to companys product and
services.
Company should know the new products demand or existing products and services from the
different ethnic groups.
Company ready to face challenges, treats from ethnic and try to make solutions for these ethnic
challenges and treats.
Income Distribution
Income distribution is also one of the important factors of demographic environment.
Company is planning to measure changes in incoming distribution, savings patterns for different
level of individual. This purpose, company can forecast and assess the changes in income
patterns and ready to identify new opportunities for companies.

NATURAL ENVIRONMENT
Natural environment is the study of an important component of the nature i.e., natural
environment.
Natural environment includes geographical and ecological factors areas as below:
Natural resource endowments,
Weather
Page 18

Environmental Factors of Small Scale Industries

Climate conditions
Topographical factors
Location aspects in the global context
Port facilities are relevant to business.
Difference in geographical conditions between markets may sometimes call for changes in the
marketing mix. Geographical and ecological factors also influence industries which help material
index tend to be located near the raw material sources.
Climate and weather conditions affect the location of certain industries like the often textile
industry. Ecological factors have recently assumed great importance. The depletion of natural
resources, environmental pollution and the disturbance of the ecological balance has caused great
concern. Government policies aimed at presentation of environmental purity and ecological
balance, conservation of non replevisable resources etc., have resulted in additional
responsibilities and problems for business, and some of these have to affect of increasing the cost
of production and marketing, externalities also become an important problem of the business has
to confront with.
TECHNOLOGICAL ENVIRONMENT
Technological factors sometimes pose serious problems. A firm that unable to cope with
technological changes may not be survived. Further, the differing technological environment of
different markets or countries may be called for product modifications.
Technology is the most important elements of the macro environment. Technology is the human
being innovation and it literally wonder. Technology helps to human being go to moon, travelling
the spaceships, other side of the globe with few hours. Advances in the technologies have
facilitated product improvements and introduction of new products and have considerably
improved the marketability of the products.
Internet and telecom system is the part of technological development in the world. These things
today changed whole world. It changes people and business operation. It leads to many new
business opportunities apart from the many existing systems.
Technological environment characteristics are outlined:
The find of technological change
Opportunities are arising out of technological developments.
Page 19

Environmental Factors of Small Scale Industries

Risk and uncertain is the major feature of the technological developments.
Research and development role to country
Technology and business activities are to be highly considerable, interrelated and interdependent.
Technology output/fruits available to society through business activities in this way improve the
quality of life in the society. Therefore, technology nurtured by business.
Technologies issues relating with companies are listed below:
Access to the internet communication facilities which is enable to connect large numbers of
employees to work from one place/ home to another place in the globe. It helps to business for
sales and exchange of goods and services.
It provide opportunity to customers with accessing to online shopping through the internet
technology.
Key Issues of Technology
Strategist should know what of type technology used by company?
Strategist should know which type of technologies are used in the companies, business,
products and its services?
To know the critical issues in technology and know the operating skills in technology related
products and services.
To know the availability of technology to organisation. And also its procedure to get external
technology for its operations.
To know the cost of technology, alternative technology, competitors, design structure of the
technology and production implementation services of the company.
To know the companys business applications that are relating to technology.
Technology helps the business for formulation of strategy, implementation of strategy and
control of the company performance.
Technological Environment of the Company

Page 20

Environmental Factors of Small Scale Industries

GLOBAL ENVIRONMENT
Global environment is one of the important elements to macro environment of the business.
Today competitive scenario changes rapidly and its impact on business of company. For this,
reasons, strategist should understand the global environment, its characteristics, functions and
merit and demerit to company. Global environment treated as whole world just as village and has
changed how individuals and organisations relate to each other. These are influenced to
organisation to get project from global clients.
Assessments of the global environment factors are outlined:
To know the potential positive and negative impact of significant international events like a
sport meet or a terrorist attack.
To identify both emerging global markets and global market which are ensuring changing. It
includes newly industrialized countries like in Asia. In developing countries that imply the
opening of new markets for new products, thats result is to be increased competition from
emerging globally competitive companies in India and South Korea and China.
To know the difference between in cultural and institutional attributes of individual global
markets.
Globalization of markets refers to the process of integrating and merging of the distinct world
markets into a single market. This process involves the identification of some common norm,

Page 21

Environmental Factors of Small Scale Industries

value, taste, preference and convenience and slowly enables the cultural shift towards the use of
a common product or service.
A number of consumer products have global acceptance. For example, CocaCola,
Pepsi, McDonalds Music of Madonna, MTV, Sony Walkmans, Levis jeans, Indian masala dosa,
Indian Hyderabadi biryani, Citicorp credit cards etc.
Nature of Globalization
It indicates the several things for several people in the world.
It is a new concept that is based on the set of fresh beliefs, working methods, economic,
political and socio-cultural relatives in business.
It integrates with the world economy and opens itself for new and potential huge market for
developing and developed countries in the global.
It intends to remove all trade barriers among countries in the world.
Characteristics of a Global Company
Global company refers to operating in more than one country in the world and gains its R&D,
production, marketing and financial advantages in terms of costs and reputations that are not
available to domestic competitors. Global company is one that has the world market. Minimizes
the importance of national boundaries, sources, raises capital and market in this way it will be
done the best job.
Global company major characteristics are outlined
Global company is a firm which having multiple units that are located in different parts of the
world but all linked by common ownership umbrella.
Global multiple units draw on a common pool of resources like money, credit information,
patents, trade names and control systems.
Global company can be follow common strategy for sell its products in most countries and
manufactures in many. Another important fact is that its shareholders and human resources are
also based on different nations.

Page 22

Environmental Factors of Small Scale Industries

Reasons for Globalisation
Large-scale industrialisation enabled mass production. Consequently, the companies found that
the size of the domestic market is very small to suffice the production output and thus opted for
foreign markets.
Companies in order to reduce the risk diversity of portfolio of countries.
Companies globalise markets in order to increase their profits and achieve goals.
The adverse business environment in the home country pushed the companies to globalise their
markets.
To cater to the demand for their products in the foreign markets.
The failure of the domestic companies in catering the needs of their customers pulled the
foreign countries to market their products.
International environment is the very important from the point of view of certain categories of
business. It is particularly important to industries which are directly depending on imports or
exports and import competing industries.
Advantages of Globalisation
Free flow of capital and increase in the total capital employed
Free flow of technology from developed countries to developing countries
Increase in industrialisation
Spread production facilities throughout the global
Balanced development of world economies
Increased in production and consumption of outputs
Commodities available at lower price with high quality
Cultural exchange and demand for a variety of products in foreign market
Increased in jobs opportunities and income
Balanced in welfare and prosperity of the countrys economic
Disadvantages of Globalisation
Globalisation kills domestic small business firms
Exploits human resources in global firms
Leads to unemployed and underemployment in developing countries
The customer demand decline in domestic products
Decline the income because of unemployment
Widening gap between rich and poor
Page 23

Environmental Factors of Small Scale Industries

National sovereignty at stake
Leads to commercial and potential colonialism to poor countries
Why do companies go global?
Reasons for companies going global as outlined:
To Gain Access to New Customers
This is the first reason to companies expand into foreign market. It offers potential for increased
revenues, profits and long-term growth and becomes an especially attractive option when a
companys home markets is mature. Mature industries plan to enter new market, therefore, to
access to new customer for their products and service.
To Achieve Lower Cost Enhance the Firms Competitiveness
This is the second reason to domestic companies opt to be expanding their market in outside
countries. Many companies are driven to sell their products and service in more than country
because the sales volume achieved in their own domestic markets is not large enough to fully
capture manufacturing economies of scale and experience curve effects and thereby substantially
improve a firms cost competitiveness.
To Capitalise on its Core Competencies
This is the third factor to companies expand their domestic market into international market. A
company with competitively valuable competencies and capabilities may be able to leverage
them into a position of competitive advantage in foreign market as well as just domestic markets.
To spread its Business Risk across a Wider Market base
This is the last reason opt companies to expand their domestic market into international market.
A company spreads its business risk by operating in a number of different foreign countries
rather than depending entirely on operations in its own domestic market.
Except in a few cases, companies in natural resource based industries such as oil and gas,
minerals, rubber and lumber often to find it necessary to operate in the international arena
because of attractive raw material suppliers are located in foreign countries.
Speed and Faster Communication Network

Page 24

Environmental Factors of Small Scale Industries

Globe thanks to faster communication, speedier transportation, growing financial flows and rapid
technological changes due to advanced communication network development.
Reduce transportation costs
Companies often set up overseas plants and machinery to reduce transportation costs. The
following development is also responsible for transportation operation of companies:
Globalisation of firms and industries
The rise of the services sector. It constitutes the one of the largest single sector in the world
economy.
Rapidly changing technologies which are transforming in the originate nature, organisation, and
location of international production.
Manifestation of Globalization

Page 25

Environmental Factors of Small Scale Industries

Scales of Business
Business ranges in size from the single proprietor at one extreme to the large multinational at the
other which employs thousands of people over several countries. The structure of these
businesses will be very different and the problems they face will vary as a result of the
differences in size. The size structure of business will depend on many factors range from choice
to external factors which are beyond the control of the firm. According to the Micro, small and
medium enterprise development Act 2005, enterprise means an industrial undertaking or a
business concern or any other establishment, by whatever name called, engaged in the
manufacture or production of goods, in any manner, pertaining to any industry specified in the
First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in
providing or rendering of any service or services. Enterprises may be classified.

Page 26

Environmental Factors of Small Scale Industries

SMALL SCALE ENTERPRISES
Meaning and Concept of Small Scale Industry
In most of the developing countries including India, Small Scale Industries (SSI) constitutes an
important and crucial segment of the industrial sector. They play an important role in
employment creation, resource utilisation and income generation and helping to promote changes
in a gradual and phased manner. They have been given an important place in the framework of
Industrial planning both for economic and ideological reasons. The scarcity of capital in
developing nations severely limits the number of non-farm jobs that can be created because
investment costs per job are high in large and medium industries. An effective development
policy has to attempt to increase the use of labour, relative to capital to the extent that it is
economically efficient.
Small scale enterprises are generally more labour intensive than larger organisations. As a matter
of fact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian
economy in recent years. It has attracted so much attention not only from industrial planners and
economists but also from sociologists, administrators and politicians.
Definition of Small Scale Industry (SSI)
Basically, the industries which are organized on a small scale and produce goods with the help of
small machines, hired labour and power are called as small scale industries
The definition for small-scale industrial undertakings has changed over time. Initially, they were
classified into two categories- those using power with less than 50 employees and those not
using power with the employee strength being more than 50 but less than 100. However, the
capital resources invested on plant and machinery buildings have been the primary criteria to
differentiate the small-scale industries from the large and medium scale industries.
An industrial unit can be categorized as a small- scale unit if it fulfils the capital investment limit
fixed by the Government of India for the small-scale sector. The Central Government has
classified in the case of the enterprises engaged in the manufacture or production of goods
pertaining to any industry specified in the first schedule to the Industries

Page 27

Environmental Factors of Small Scale Industries

Classification of Small Scale Industry
A common classification is between traditional small industries and modern small industries.
Traditional small industries include khadi and handloom, village industries, handicrafts,
sericulture, coir, etc. Modern SSIs produce wide range of goods from comparatively simple items
t sophisticated products such as television sets, electronics, control system, various engineering
products, particularly as ancillaries to the large industries. The traditional small industries are
highly labour-intensive while the modern small-scale units make the use of highly sophisticated
machinery and equipment.
For instance, during 1979-80, traditional small-scale industries accounted for only 135 of the
total output but their share in total employment was 56%. As against this, the share of modern
industries in the total output of this sector was 74% in 1979-80 but their share in employment
was only 33%. Obviously, these industrial units would be having higher labour productivity. One
special characteristic of traditional small-scale industries is that they cannot provide full time
employment to workers, but instead can provide only subsidiary or part time employment to
agricultural laborers and artisans. Among traditional village industries, handicrafts possess the
highest labour productivity, besides handicrafts make a significant contribution to earning foreign
exchange for the country.
Nowadays Indian small-scale industries (SSIs) are mostly modern small-scale industries.
Modernization has widened the list of products offered by this industry The items manufactured
in modern Small-scale service & Business enterprises in India now include rubber products,
plastic products, chemical products, glass and ceramics, mechanical engineering items,
hardware, electrical items, transport equipment, electronic components and equipments,
automobile parts, bicycle parts, instruments, sports goods, stationery items and clocks and
watches.
Role of Small Scale Industries in the Indian Economy
The small-scale industrial sector plays a pivotal role in the Indian economy in terms of
employment and growth has recorded a high rate of growth since Independence in spite of stiff
competition from large-scale industries. There are several important reasons why these industries
are contributing a lot to the progress of Indian economy;
Production: The small-scale industries sector plays a vital role in the growth of the country. It
contributes almost 40% of the gross industrial value added in the Indian economy. It has been
estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62
Page 28

Environmental Factors of Small Scale Industries

million worth of goods or services with an approximate value addition of ten percentage points.
The small-scale sector has grown rapidly over the years. The growth rates during the various
plan periods have been very impressive. The number of small-scale units has increased from an
estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000.When the
performance of this sector is viewed against the growth in the manufacturing and the industry
sector as a whole, it instills confidence in the resilience of the small scale sector.
Employment: SSI Sector in India creates largest employment opportunities for the Indian
population, next only to Agriculture. It has been estimated that 100,000 rupees of investment
infixed assets in the small- scale sector generates employment for four persons.
Export: SI Sector plays a major role in India's present export performance. SSI Sector
contributes 45%- 50% of the Indian Exports. Direct exports from the SSI Sector account for
nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units
contribute around 15% to exports indirectly. This takes place through merchant exporters, trading
houses and export houses. They may also be in form of export orders from large units or the
production of parts and components for use for finished exportable goods.
Opportunity: The opportunities in the small-scale sector are enormous due to the following
factors:
Less Capital Intensive
Extensive Promotion & Support by Government
Reservation for Exclusive Manufacture by small scale sector
Project Profiles
Funding - Finance & Subsidies
Machinery Procurement
Raw Material Procurement
Manpower Training
Technical & Managerial skills
Tooling & Testing support
Reservation for Exclusive Purchase by Government
Export promotion
Growth in demand in the domestic market size due to overall economic growth
Increasing Export Potential for Indian Products: Growth in Requirements for ancillary units due
to the increase in number of green field units coming up in the large-scale sector. Small industry
sector has performed exceedingly well and enabled our country to achieve a wide measure of
industrial growth and diversification
Page 29

Environmental Factors of Small Scale Industries

Fashion technology
Information technology
Design technology
Welfare: These industries are also very important for welfare reasons. People of small means can
organize these industries. This in turn increases their income levels and quality of life. As such
these can help in reducing poverty in the country. Further, these industries tend to promote
equitable distribution of income. The reasons are obvious. One, a large proportion of income
generated in these enterprises is distributed among the workers. Two, income are distributed
among a vast number of persons throughout the country. All these benefits flow from the fact that
these industries are highly labour-intensive, and that these can be set up anywhere in the country.
Distributive aspect of small-scale industries further unravels their two- fold beneficial character.
On the one hand, these industries enable a vast number of people to earn income and on the other
hand the very people among whom these are distributed generate this income.

Page 30

Environmental Factors of Small Scale Industries

LARGE SCALE ENTERPRISES
Large scale industries refers to those industries which require huge infrastructure, man power
and a have influx of capital assets. The term large scale industries is a generic one including
various types of industries in its purview. All the heavy industries of India like the Iron and steel
industry, textile industry, automobile manufacturing industry fall under the large scale industrial
arena. However in recent years due to the IT boom and the huge amount of revenue generated by
it the IT industry can also be included within the jurisdiction of the large scale industrial sector.
Last but not the least, the telecoms industry also forms and indispensable component of the large
scale industrial sector of India. Indian economy is heavily dependent on these large industries for
its economic growth, generation of foreign currency and for providing job opportunities to
millions of Indians.
In India, industries with a fixed asset of more than one hundred million rupees are called large
scale industries. These could be manufacturing units or others which use both indigenous and
imported technologies. They cater to both the local and foreign markets. Examples of large scale
industries include fertilizer, cement, natural gas, coal, metal extraction, metal processing,
petroleum, natural gas, mining, electrical, petrochemical, food processing units, tourism,
banking, sugar, construction, automobile, communication equipment, cement, chemicals, earth
movers, consumer durables (like television, refrigerators, etc), engineering products, vehicle
assembly, beverages, gas and water; other fuels, agricultural processing, insurance and finance.
With the opening up of the market and globalization, the effects on such industries has been
mixed, some have gained by attracting foreign customers, foreign trade and technology, tie-ups,
while others have lost out due to their inability to cope up with the open market competition.
PUBLIC ENTERPRISES
Traditionally, business activities were left mainly to individual and private organisations, and the
government was taking care of only the essential services such as railways, electricity supply,
postal services etc. But, it was observed that private sector did not take interest in areas where
the gestation period was long, investment was heavy and the profit margin was low; such as
machine building, infrastructure, oil exploration etc. not only that, industries were also
concentrated on some regions that had certain natural advantages like availability of raw
material, skilled labour and nearness to market. This led to regional imbalances. Hence while
government regulating the business activities of private enterprises went in for direct
Page 31

Environmental Factors of Small Scale Industries

participation in business and set up public enterprises in areas like coal industry, oil industry,
machine building, steel manufacturing, finance and banking, insurance etc. These units are not
only owned by central, State or local government but also managed and controlled by them and
are termed as Public Sector Enterprises.
Meaning of Public Enterprises
Public enterprises as a form of business organisation have attained a great deal of significance in
recent times. During 20th century various governments have taken active part in the industrial
and commercial activities. The term public enterprise denotes a form of business organisation
owned and managed by the state government or any other public authority. So it is an undertaking
owned and controlled by the local or state or central government. The whole or most of the
investment is made by the government.
According to A. H. Hansen, a public enterprise denotes "state ownership and operation of
industrial, agricultural, financial and commercial undertakings". According to N. N. Malaya,
"Public enterprises are autonomous or semi-autonomous corporations and companies
established, owned and controlled by the state and engaged in industrial and commercial
undertakings".
A public sector enterprise may be defined as any commercial or industrial undertaking owned
and managed by the government with a view to maximise social welfare and uphold the public
interest.
Public sector consists of nationalised private sector enterprises, such as, Insurance, Banks and
new undertaking set up by the government such as Hindustan Machine Tools (HMT), Gas
Authority of India (GAIL) etc.
Characteristics of Public Enterprises
The chief characteristics of public enterprises are:
Autonomous or Semi-Autonomous Organisation: Public enterprise is an autonomous or semiautonomous organisation because some enterprises work under the direct control of the
government and some organizations are established under statutes and companies act.
State Control: The public enterprises are financed, owned and managed by the government may
be a central or state government.

Page 32

Environmental Factors of Small Scale Industries

Rendering Service: The primary objective of the establishment of public enterprises is to serve
the public at large by supplying the essential goods at a reasonable price and creating
employment opportunities.
Useful to Various Sectors: The state enterprises serve all sectors of the people of the company.
They do not serve a particular section of the people in the community.
Monopoly Enterprises: In some specific cases private sectors are not allowed and as such the
public enterprises enjoy monopoly in operation. The state enterprises enjoy monopoly in
Railways, Post and Telegraph and Energy production.
A Direct Channel for Use of Foreign Money: Sometimes the government receives foreign
assistance from industrially advanced countries for the development of industries. These
advances received are spent through public enterprises.
Public Accountability: The state enterprises are liable to the general public for their
performances because they are responsible for the nation.

Page 33

Environmental Factors of Small Scale Industries

BUSINESS ENVIRONMENT
According to Barnard Environment consists of atoms and molecules, agglomeration of things in
motion, alive, of men and emotions, of physical and social law, social ideas, norms of actions, of
forces and resistance. The number is infinite and they are always present, they are always
changing. Any business works within the framework provided by the various elements of
society. Environment includes all the conditions and circum- stances, influences surrounding and
affects the total organization or any of its part. Business is all around us. It has a role to play in
every aspect of our lives. Every activity of human being involves business to satisfy his
unlimited wants and desires. Despite being universal and primary feature of human existence, it
is not possible to define business with precision.
MEANING OF BUSINESS ENVIRONMENT
Business may be understood as the organized efforts of an enterprise to supply consumers with
goods and services for a profit. Businesses vary in size, as measured by the number of employees
or by sales volume etc. But, all businesses share one common purpose that is to earn profits.
The purposes of business that goes beyond earning profits are:
an important institution in society
for the supply of goods and services
creating job opportunities
offering better quality of life
contributing to the economic growth of the country.
Hence, it is understood that the role of business is crucial from the point of view of individuals
and national society as well. Society cannot do without business. Similarly, it requires no
emphasis that business needs society as much. Modern business is dynamic. If there is any single
word that can best describe todays busi- ness, it is change. It is change that makes the
companies spend substantially on Research and development (R&D) to survive in the market.
Environment refers to all forces, which have a bearing on the functioning of business. They can
be forces of economic, social, political and technological factors, apart from internal forces of
the organisation.
Environment factors are largely if not totally, external and beyond the control of individual
industrial enterprises and their managements. The business environment poses threats to a firm
or offers immense opportunities for potential market exploitation.
The success of every business depends on adapting itself to the environment within which it
functions. For example, when there is a change in the government polices, the business has to
Page 34

Environmental Factors of Small Scale Industries

make the necessary changes to adapt it to the new policies. Similarly, a change in the technology
may render the existing products obsolete, as we have seen that the introduction of computer has
replaced the typewriters; the color television has made the black and white television out of
fashion. Again a change in the fashion or customers taste may shift the demand in the market for
a particular product, e.g., the demand for jeans reduced the sale of other traditional wear. All
these aspects are external factors that are beyond the control of the business. So the business
units must have to adapt themselves to these changes in order to survive and succeed in business.
Hence, it is very necessary to have a clear understanding of the concept of business environment
and the nature of its various components.
FEATURES OF BUSINESS ENVIRONMENT
Understanding environment within which the business is to operate is very important for
successful business. Some of the features of business environment are as follows:
Totality of External Forces: Business environment is the sum total of all things external to
business firms and, as such, is aggregative in nature.
Specific and General Forces: Business environment includes both specific and general forces.
Specific forces (such as investors, customers, competitors and suppliers) affect individual
enterprises directly and immediately in their day-to-day working. General forces (such as social,
political, legal and techno- logical conditions) have impact on all business enterprises and thus
may affect an individual firm indi- rectly only.
Dynamic Nature: Business environment is dynamic in nature. It keeps on changing whether in
terms of technological improvement, shifts in consumer preferences or entry of new competition
in the market.
Uncertainty: Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too frequently as in the case
of information technology or fashion industries.
Relativity: Business environment is a relative concept since it differs from country to country and
even region to region. Political conditions in the USA, for instance, differ from those in China or
Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost nonexistent in France.
Multi-faceted: Business environment changes are frequent and depend on knowledge and
existence of business person. Changes may be viewed differently bu different individuals. It may
be an opportunity for some or a threat for others.
IMPORTANCE OF BUSINESS ENVIRONMENT
Page 35

Environmental Factors of Small Scale Industries

There is a close and continuous interaction between the business and its environment. This
interaction helps in strengthening the business firm and using its resources more effectively. As
stated above, the business environ- ment is multifaceted, uncertain, and dynamic in nature which
has a far-reaching impact on the survival and growth of the business. To be more specific, proper
understanding of various aspects of business environment such as social, political, legal and
economic helps the business in the following ways:
First Mover Advantage: Early identification of opportunities helps an enterprise to be the first to
exploit them instead of losing them to competitors. For example, Maruti Udyog became the
leader in the small car market because it was the first to recognize the need of small cars in India.
Identification of Threats: Identification of possible threats helps in taking corrective and
improving mea- sures to survive the competition. For instance; if an Indian firm finds that a
foreign multinational is entering the Indian market, it can meet the threat by adopting measures
like, by improving the quality of the product, reducing cost of the production, engaging in
aggressive advertising, and so on.
Coping with Rapid Changes: All types of enterprises are facing increasingly dynamic
environment. In order to effectively cope with these significant changes, firms must understand
and examine the envi- ronment and develop suitable course of action.
Improving Performance: The enterprises that continuously monitor their environment and adopt
suit- able business practices are the ones which not only improve their present performance but
also con- tinue to succeed in the market for a longer period.
Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers
of growth for the business firms. It enables the business to identify the areas for growth and
expansion of their activities
TYPES OF BUSINESS ENVIRONMENT
There are mainly two types of business environment, internal and external. A business has
absolute control in the internal environment, whereas it has no control on the external
environment. It is therefore, required by businesses, to modify their internal environment on the
basis of pressures from external.

INTERNAL ENVIRONMENT

Page 36

Environmental Factors of Small Scale Industries

The internal environment has received considerable attention by firms. Internal environment
contains the owner of the business, the shareholders, the managing director, the non-managers,
employees, the customers, the infrastructure of the business organization, and the culture of the
organization.
It includes 6 Ms i.e.
Man (Human Resource)
Money (Financial Factors)
Marketing Resources
Machinery (Physical Assets)
Management Structure and Nature
Miscellaneous Factors (Research and Development, Company Image and Brand Equity, Value
Sys- tem, Competitive Advantage)
Usually, these factors are within the control of business. Business can make changes in these
factors according to the change in the functioning of enterprise.
EXTERNAL ENVIRONMENT
The external environment of an organisation comprises of all entities that exists outside its
boundaries, but have significant influence over its growth and survival. An organisation has little
or no control over its external environ- ment but needs to constantly monitor and adapt to these
external changes. A proactive or reactive response leads to significantly different outcomes.
There are two types of external environment
Micro/Operating Environment
Macro/General Environment
MICRO ENVIRONMENT
The micro environment is also known as the task environment and operating environment
because the micro environmental forces, though are external factors, still have a direct bearing on
the operations of the firm. The micro environment consists of the factors in the companys
immediate environment that affects the performance and working of the company. The micro
environmental factors are more intimately linked with the company than the macro factors. The
micro forces need not necessarily affect all the firms in a particular industry in the similar ways.
Some of the micro factors may be particular to any given type of organisation.
Micro environmental factors, internal factors close to a business that have a direct impact on its
strategy includes:
Customers
Page 37

Environmental Factors of Small Scale Industries

Employees
Suppliers
Shareholders
Media
Competitors
Customers: Organizations survive on the basis of meeting customer needs and wants and
providing benefits to their customers. Failure to do so will result in a failed business strategy.
This includes offering customers the best quality products at reasonable prices.
Employees: Employing the correct staff and keeping staff motivated is an essential part of an
organizations strategic planning process. Training and development play a critical role in
achieving a competitive edge; especially in service sector marketing. Employees have a
substantial influence on the success of the enterprise. They help in executing the policies and
plans of business. If this factor is not given, as much attention as it requires, it may prove to be
non beneficial for the organisation as employees after customer, are the backbone of the
organisation.
Suppliers: Suppliers provide businesses with the materials they need to carry out their
manufacturing and production activities. A suppliers behaviour will directly impact the business
it supplies. For ex- ample, if a supplier provides a poor service, this could increase timescales or
lower product quality. An increase in raw material prices will affect an organizations marketing
mix strategy and may even force price increases. Close supplier relationships are an effective
way to remain competitive and secure quality products.
Shareholders: A shareholder is an individual that invests into companys business. They own
shares of the company thereby end up owning the company itself. Therefore, they have the right
to vote on decisions that affect the operations of company. This means that shareholders affect
the functions of the business. The introduction of public shareholders brings new pressures as
public shareholders want a return from their money invested in the company. Shareholder
pressure to increase profits will affect organizational strategy. Relationships with shareholders
need to be managed carefully as rapid short term increases in profit could detrimentally affect the
long term success of the business, if all is distributed as dividend. On the other hand, to keep
shareholders motivation, appropriate dividends are needed to be distributed. There has to be a
balance between health of the organisation and interests of shareholders.
Media: Positive media attention can make an organisation (or its products) and negative media
atten- tion can break an are required. Organizations need to mange the media so that it helps
promote the positive things about the organisation and conversely reduce the impact of a
Page 38

Environmental Factors of Small Scale Industries

negative event on their reputation. Some organizations will even employ public relations (PR)
consultants or gurus to help them manage a particular event or incident. Consumer television
programmes with a wide and more direct audience can also have a very powerful impact on the
success of an organisation. Some busi- ness recognizes this and uses media support for building
their image and reputation.
Competitors: The name of the game in marketing a product is differentiation. Can the
organisation offer benefits that are better than those offered by competitors? Does the business
have a unique selling point (USP)? Competitor analysis and monitoring is crucial if an
organisation is to maintain or improve its position within the market. If a business is unaware of
its competitors activities, they will find it very difficult to beat them. The market can move
very quickly, whether that is a change in trading conditions, consumer behaviour or
technological developments. As a business, it is important to examine competi- tors responses to
the changes, so that firm can maximize the benefits.
MACRO ENVIRONMENT
Macro environment is also known as general environment and remote environment. Macro
factors are generally more uncontrollable than micro environment factors. When the macro
factors become uncontrollable, the suc- cess of company depends upon its adaptability to the
environment. This environment has a bearing on the strategies adopted by the firms and any
changes in the areas of the macro environment are likely to have a far- reaching impact on their
operations.
The macro environment is primarily concerned with major issues and upcoming changes in the
environment. The acronym for the macro analysis is STEEP. The five areas of interest are:
Socio-Cultural and Demographics
Technology
Economic Conditions
Ecology and Physical Environment
Political and Legal
Socio Cultural and Demographics: Societal values and lifestyles change over time, and the most
impor- tant of these; directly or indirectly leave an impact on the business environment. For
example, over the past generation, it has become acceptable for women to work; people are not
retiring at 65; and people are more aware of the environment etc.
The changes in culture and lifestyle may come from many sources: medical (smoking, healthy
eating, exercises); science (global warming, going green); economic (people working longer,
Page 39

Environmental Factors of Small Scale Industries

women in the workforce); cultural diversity (music preferences, foods, living accommodations,
medicine); and tech- nologies (biodegradable plastic) are just a few examples.
These changes will be important to the industry and to the business. The social environment of
busi- ness includes social factors like customs, traditions, values, beliefs, poverty, literacy, life
expectancy rate etc. The social structure and the values that a society cherishes have a
considerable influence on the functioning of business firms. For example, during festive seasons,
there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in
literacy rate, the consumers are becoming more conscious of the quality of the products. Due to
change in family composition, more nuclear families with single child concepts have come up.
This increases the demand for the different types of household goods. It may be noted that the
consumption patterns, the dressing and living styles of people belonging to different social
structures and culture vary significantly.
Demographics refer to the size, density, distribution and growth rate of population. All these
factors have a bearing on the demand for various goods and services. For example, a country
where popula- tion rate is high and children constitute a large section of population, and then,
there will be more demand for such products. Similarly, the demand of the people of cities and
towns are different than that of people of rural areas. The high rise of population indicates the
easy availability of labour. These encourage the business enterprises to use labour intensive
techniques of production. Moreover, avail- ability of skilled labour in certain areas motivates the
firms to set up their units in such area. For ex- ample, the business units from America, Canada,
Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus,
a firm that keeps a watch on the changes on the demo- graphic front and reads them accurately
will find opportunities knocking at its doorsteps.

Page 40

Environmental Factors of Small Scale Industries

SWOT ANALYSIS
Originated by Albert S Humphrey in the 1960s, SWOT Analysis is as useful now as it was then.
SWOT is the analysis of a companys Strengths, Weaknesses, Opportunities, and Threats to identify
a strategic niche that the company could exploit. SWOTAnalysis merges the external factors

SWOT Analysis

(environment analysis, opportunities and threats identification) with the internal factors (companys
resources analysis, companys strengths and weaknesses identification).
SWOT analysis is very important. The entrepreneur is able to access the feasibility of his goals
and objectives using the outcome of SWOT analysis and identification of the companys
opportunities. The entrepreneur who has conceived an idea in his minds would then be able to
evaluate whether such plans, mission and objectives are even close to realism or are in the wave
of air only. If they are realistic, the entrepreneur can continue to formulate strategies. But if they
are not realistic, the entrepreneur should amend and modify plans or discard the same to
originate a new one which has more odds of the success.
This tool can use it in two ways - as a simple icebreaker helping entrepreneur to analyze the plan
and judge the feasibility, or in a more sophisticated way as a serious strategy tool wherein the
entrepreneur checks SWOT every stage of his formulating the plan and then put forward the idea
as a business.
There are four components to this analysis. Strengths and weaknesses are often internal to your
organization, while opportunities and threats generally relate to external factors. For this reason the
SWOT Analysis is sometimes called Internal-External Analysis and the SWOT Matrix is
sometimes called an IE Matrix.

Page 41

Environmental Factors of Small Scale Industries

All four components cover certain basic questions that need to be answered. These are as
follows:
Strengths
What advantages does your idea have?
How does it serve the society better than anyone else?
How do you use unique or lowest-cost resources to your idea that others cant?
What would be your strengths in the market ones this idea is materialized?
What factors mean that you get the sale?
What is your innovations Unique Selling Proposition (USP)?
Consider your strengths from both an internal perspective, and from the point of view of your
customers and people in your prospective market.
Weaknesses
What is the further scope of improvement?
What are the things that need to be avoided?
What are people in your market likely to see as weaknesses?
What factors lose you sales?
Opportunities
What good opportunities can you spot in relation to the innovative idea you have?
What interesting trends are you aware of?
Useful opportunities can come from such things as
Changes in technology and markets on both a broad and narrow scale.
Changes in government policy related to your field.
Changes in social patterns, population profiles, lifestyle changes, and so on.
Local events.
Threats
What obstacles are likely to be faced?
Are quality standards or specifications for your job, products or services changing?
Is changing technology threatening your position?
Could any of your weaknesses seriously threaten your business?

Page 42

Environmental Factors of Small Scale Industries

When looking at your strengths, think about them in relation to your competitors. For example, if
all of your competitors provide high quality products, then a high quality production process is
not strength in your organizations market, its a necessity.

Conclusion
Small scale businesses are indispensable catalyst and important contributor to the economic
growth in every nation due to their vast irreplaceable prospect in the economy. Small businesses
serve as laboratory for the development and innovation of new ideas and offerings before market
commercialisation in order to prevent the production of goods and services that does not meet
consumer expectation. This unique nature of small scale business makes the personalization and
modification of product to meet consumer preference easy. Hence, small business operators must
develop and adopt scientific and rational business management strategies that will aid and
increase their understanding of both their business and its environment. A sound knowledge of
the dynamic business environment will facilitate the planning and predictions on the most
significant factors that affect business survival. This study indicated that competition,
inflationary trend, technological changes, government policy, Infrastructural facilities
accessibility, changing consumer behaviour and income are still problems to small business

Page 43

Environmental Factors of Small Scale Industries

Bibliography
www.infoindia.com
www.sipnsurf.com
www.7506259405.com
www.proindia.com
www.scri.co.in

Page 44