K. Ashok Kumar

Entrepreneurship Development

Lecturer, GIACR Rayagada

Environmental Dynamics & Change

Entrepreneurs need to evaluate the environment not only prior to the start-up of their business but also during the growth stage of ventures. An environment is the situation where business ventures operate. Ventures environments can be divided into two parts, which are:

Macro view of the External environment

Micro view of the External and Internal environment

The Components of Venture Environment

External Environment

Macro Environment

Internal Environment

Micro Environment

Politicaland

Legislation

Socio Cultural

Economy Technology

Customers Competitors

SuppliersFinancial

Institutions

Non Govt Organizations

Govt Agency

Organization Structure Culture Resources

Political & Legislation

This is the environment where entrepreneurs exercise their political power. To a large extent, usually entrepreneurs have to take the given political and legislative elements of the new ventures. They have to obey and adhere to the policy, legislation and regulations where the business operates.

External Environment(Macro)

EconomyThe economic environment plays a vital role in the success or

failure of any new venture. A macroeconomic environment encompasses the total of all goods and services produced, distributed, sold and consumed. Entrepreneurs need to analyze this environment at the global, national and local levels where their business operates.

Each business is related to one another at these three levels of the macro economics environment. However, one should know which level has a greater impact on entrepreneurs. Entrepreneurs should scan, monitor, forecast and assess the macroeconomic conditions that affect the new venture. They should be able to see the changes that happen in the economy and be able to determine the variables that are relevant for analysis.

Socio Cultural

Demographic changes - They occur due to changes in the population, ethnic groups, and population structure according to age, gender, geographical location, and population distribution of income. These elements are the contributing factors to consumers’ demand, purchasing power and industrial capacity. Entrepreneurs should also closely examine these elements which contribute to the creation of markets. However, the demographic trend and changes are beyond an entrepreneurs’ control. Entrepreneurs need to assess demographic changes in order to identify business opportunities.

Social Changes - They relate to the modes and manner in which people live their lives. Lifestyle reflects the peoples’ tastes and preferences. Entrepreneurs need to scan and monitor lifestyle changes in order to identify business opportunities.

TechnologyThe branch of knowledge that deals with industrial arts, applied science, engineering, process, invention or method can be defined as technology. Technological analysis requires scanning and monitoring from the time of basic research through product development and commercialization. Technological change takes two forms:

Pure Invention - Pure invention refers to the creation of something new that is different from existing technology or products.

Process Innovation - Process innovation refers to the small changes in design, product formulation and manufacturing, materials and distribution. This will be discussed in further detail in the section on opportunity identification.

Telsa MotorGranny hanging lamp

Micro EnvironmentCustomers

Customers are the main target group in business. They consume goods and services produced by the industry. Customers can be among individuals in the society, such as housewives, workers, students or groups of people. The consumer is king in the market system. 

CompetitorsEntrepreneurs in new venture businesses must really analyze their competitors in the industry. The competitors are the businesses that fulfill the same customer needs or have the potential to serve those customers. They can be identified by asking the customers (of existing business) or potential customers (of new business) where they can buy the product or services. Entrepreneurs can identify them through business directories.

Suppliers

Suppliers are the second group of people that have great influence on entrepreneurial activities. They can increase the prices they charge for the products and services they sell. They can also decrease the quality of those products and services that are in the market.Financial institutions

Financial institutions are one of the sources for external funding to initiate a new business venture or for expanding an existing business. Loans from financial institutions are not only hard to get for new venture entrepreneurs because of their lack of track record, but also because of the cost in terms of interest payment, which burdens the new business. Thus, financial institutions have a direct influence on entrepreneurs.  

Government Agencies

Government influences the entrepreneurial activities through policy implementation. Some examples include the New Economic Policy, Privatization Policy and the Malaysian Agriculture Policy which have been implemented in our country. Some policies have direct impact on entrepreneurial activities.

Non-government organizationsNon-government organizations such as consumer societies,

political organizations, religious groups, business society, environmental groups and others are among interest groups that can influence entrepreneurs. These groups can influence entrepreneurs through campaigns against products or services and by disseminating the information regarding certain products. Later these actions can influence customers and pressure the government to take action on certain issues.

Internal Environment

An organization’s internal environment consists of:

Resources Structure Culture

These elements influence the entrepreneur’s decisions and activities. Entrepreneurs need to assess the strengths and weaknesses in their business before making any decision or formulating any strategies.

Resources - Among the internal resources in an organization are the entrepreneur himself, financial, human resources, tangible and intangible assets, technology and reputation. Entrepreneurial personality characteristics, skills, energy, ideas, knowledge and experiences are part of entrepreneur resources. All these resources are processed together in the business venture to produce goods and services.Structure - Organizational structure must be suitable for a new venture to adapt to changes in the environment.

Culture - Positive culture and values should be inculcated into the business organization for the benefit of all human resources.

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SHOKA