Understanding the Internal and External Business Environment


A business cannot function in a shell. In order to exist and function effectively, a business has to act and react to what happens in the external environment. "The aggregates of all conditions, events, and influences that surround and affect it" says Keith Davis (Saleem Shaikh, Business Environment, 2010) The external environment of a business refers to all those factor that directly influence the working of a business. These factors are not in control of businesses, but it is extremely important for a business because they shape the kind of business activity one can have.

The factors which influence the external environment of a business are:

Political factors - This means how the changes in the government policies, political systems and the approach and philosophy of the political party in existence influences the working of a business enterprise.

Economic factors - This means how a business is affected by the economy in terms of government spending, interest rates, taxation, exchange rates, global economic factors, infrastructure development, capital formation, etc.

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Social factors - Every business organization operates in according to the norms of the society and to satisfy their needs. This means how the culture, values, beliefs, tastes, preferences and behavior of the consumers, households and communities affects the working of a business.

Technological factors - Technology is considered to be one of the most important factors which affect the business environment. It means how the rapid change and innovation in technologies affect the production process and help businesses to produce innovative products.

Ecological factors - Ecology is the study of environment which includes plants, animals, water, air, sunlight etc. These factors affect the working of a business organization considerably in a way that government has taken some legislative measures for the protection and control of pollution in the environment like The Water Act, 1974, The Air Act, 1981, The Environment Protection Act, 1986.

Legal factors - The legal environment plays a very important role in business. Every aspect of business is regulated by the law of the country. These include the laws related to industrial licensing, factory administration, payment of wages, company laws, import and export laws etc.

Figure 1: External environment with factors.

In order to stay and survive successfully in the market for long term a business has to take in consideration all the above mentioned factors and change accordingly. These factors have affected the performance and long term sustainability of Mahindra and Mahindra to a large extent.

Mahindra and Mahindra

Mahindra & Mahindra Limited is part of Mahindra Group which is based in Mumbai. The company was started in 1945 in Ludhiana as Mahindra & Mohammed by the brothers K.C. Mahindra and J.C. Mahindra along with Malik Ghulam Mohammed.It was changed to Mahindra & Mahindra in 1948 and is currently headed by Anand Mahindra. It is now a US $7.1 billion Indian multinational.

Mahindra is the only Indian company which manufactures top tractor brands in the world. Today it has its presence in almost every segment of the automobile industry, from two-wheelers to SUV'S, CV'S and UV'S. Recently Mahindra acquired a majority stake in REVA Electric Car Co Ltd. (now called Mahindra REVA). The Mahindra Group expanded its IT portfolio when Tech Mahindra acquired the leading global business and information technology services company, Satyam Computer Services. The company is now known as Mahindra Satyam.

Mahindra &Mahindra has diversified its businesses into various sectors which are:

Automotive sector

Two wheeler sector

Farm equipment sector

Hospitality sector

Information technology sector

Table 1: Mahindra and Mahindra Gross sales for the Financial Year 2010-2009 and 2009-2008.

Table 2: Mahindra and Mahindra domestic sales for the year 2010 and 2009.

Factors influencing Mahindra and Mahindra in its various business sectors

Political factors

Automotive, Two wheeler and farm equipment sectors

In 2002, the government of India formulated an auto policy that aimed at promoting integrated, enduring and self-sustained growth of the Indian automotive industry. The approval for foreign equity investment up to 100% in the automotive sector was allowed and minimum investment criteria disallowed. The government promoted establishments of international companies for manufacturing small, affordable passenger cars as well as tractor and two wheelers. The government assisted the development of vehicle propelled by alternate energy source. The government formulated plans to have a terminal life policy for Commercial Vehicles along with incentives for replacement for such vehicles. It also promoted multi-model transportation and the implementation of mass rapid transportation system.

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These political influences have lead Mahindra and Mahindra to increase production of its vehicles and inflow of foreign investments. Also the development of alternate energy source vehicles has led Mahindra to acquire majority stake in REVA electric car co ltd.

Hospitality sector

It includes the central governments legal issues and regulations. This includes various Laws and Act's passed out by the government in Hospitality sector some of which are as follows:

The influences of these political acts has led to the commencement of Mahindra holidays and resorts limited in 1996, offering family holidays in India and abroad. This has helped the company to grow immensely.

Information technology sector

The IT industry of India suffered political instability for a few years but it has been stable since 1999. The Indian government has decided to contract IT job to Indian IT companies creating more opportunities for the company and the industry at large. Consumer protection laws, competitive regulations and terrorist attacks are other factors to be considered. The Indian it sector does not much influence of political stability, so if the government changes it has little effect on the industry. These political forces have led Tech Mahindra in the leaders' category with a hugely successful public issue in 2006. Changes in the political conditions have allowed many companies to enter IT sector like Mahindra & Mahindra. This has lead to establishment of tech Mahindra by the Mahindra group and acquisition of Satyam.

Economical factors

Automotive, two wheeler and farm equipment sector

The automobile companies are reorganizing their sales process due to economic pressure on the industry. The government has granted concessions, by reducing the interest rates for export financing. The growth of Indian economy at the rate of 8.5% per annum has had a great influence on the automotive sector in India. Also the growth in the manufacturing sector at the rate of 8-10 % per annum in the last few years has influenced the growth of this sector. The globalization of India economy has led to the participation of several Indian firms with global players. While some have formed joint ventures with equity participation, other also has entered into technology tie-ups. These changes have allowed Mahindra to expand its market and grow rapidly in India as well as abroad.

Hospitality sector

The economic factors have a direct influence on the hospitality sector of a business this is because if there is inflation then the rates will rise quickly, keeping in mind there are two sides to it. The hospitality sector is directly linked with tourism industry. Tourism has become the number one export earner for India and this is only possible due to diversification of the economy. The economic growth of the country has led to the expansion of Mahindra into this sector by establishment of Mahindra holidays and resorts.

Information technology sector

The IT industry is being affected by lots of economic factors ranging from rising working pay, global recession, competition, contract availability and fee. In 2009 the domestic IT spending grew by 20 % and reached $20 billion. During the last global recession currency fluctuation caused devaluation of dollar which has affected the industry. The recession has also led to decline in jobs which has affected this sector. With the decline of banking and financial sectors, the revenue from them is expected to decline hurting the IT industry which has had its impact on tech Mahindra as well.

Social factors

Automotive, two wheeler and farm equipment sector

The changed lifestyle of people has led to increased purchase of automobiles, so automobile sector have a large customer base to serve. The increase in the income level of consumer as increased the buying power of people. In India, today 85% of cars are financed in India. Indian customers are highly educated and well informed. They are price sensitive as well and put lot of importance on value for money .Preference for small and compact cars in the Indian market has also increased. They are socially acceptable even amongst the well off. People these days prefer fuel efficient cars with low running costs which Mahindra has ventured into like Mahindra Renault, Scorpio, Xylo etc.

Hospitality sector

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This includes all the social and cultural trends which have been affecting the industry. The changing expectation of consumers towards the hospitality experience. The consumers expect to be catered for their hospitality needs. The consumers want to feel that they are in control of their hospitality experience. Social networking plays an important part in the growth of this sector for a firm which helps the companies the companies to relate in a better way with the consumers. The increase in wealth of consumes due to increase in their income has led to change in their taste towards luxurious living and travelling which creates more business for firms operating n this sector due to which Mahindra has grown.

Information technology

There are lots of social factors affecting the IT sector which ranges from language barriers, employee rights and race rationality of the company and other issues. The IT industry is also affected by the change in consumer behavior which is supported by the fact that different consumers have different taste. The social issues like global warming are also concern for this industry and the shift of society towards education which includes opening up of universities and institutes in India offering IT education which produces large number of students joining IT industry which is also benefiting Mahindra and Mahindra.

Technological factors

Automotive, two wheeler and farm equipment sector

There are more emphasis laid on research and development in terms of technology in this sector which has contributed to innovation. The government of India is also promoting National Automotive testing and research and development infrastructure project. Technological solution helps in integrating the supply chain, hence reduce losses and increase profitability. With the development and evolution of alternate fuels, hybrid cars have made entry into the market also global companies like Audi, BMW, Hyundai have setup their manufacturing units in India. Mahindra and Mahindra is providing customized solutions and designer cars with new technology

Hospitality sector

Advancing technology has contributed a lot for the growth of firms in hospitality sector due to which the hotel receive reservations in advance through the net. People get all the information about the hotels through agents online. With the advent of computer the airlines allow the travel agents to view their flight inventories and rates in real time. Soon the airlines also added hotels and car rental companies to their computes so that agents could book the entire guest travel through their computer. Today more than 70% of hotel reservations are done electronically from which Mahindra and Mahindra has taken advantage.

Information technology

The changes in technological sector have impacted the growth and development of various companies. It has also forced other companies whose core business is not in IT sector to venture in this sector for example Mahindra and Tata. The present conditions are mainly due to the result that the masses have become techno savvy and there is a lot of potential in this sector.

Legal factors

Automotive sector

The legal angle to the automotive sector has undergone a sea change during the last 50 years and Mahindra and Mahindra has been able to cope up with the same. As more and more stricter norms regarding environmental pollution has come into effect so Mahindra and Mahindra has brought new technology into their products to address to the legal applications and this constant endeavor of the Mahindra group has enabled it to constantly abide by the laws and rules and regulations of India and the worlds over.

Hospitality sector

The rules and regulations regarding the hospitality industry have also changed and as a result Mahindra and Mahindra have to adjust themselves according to the same and they have tried to adjust to the same also

Information technology Sector

Government of India has opened up the IT sector in India and has made the laws very lenient so that the business community can benefit from the same. This has led the Mahindra and Mahindra to launch Tech Mahindra as their Brand and acquisition of Satyam co

Ecological factors

Automotive sector, two wheeler and farm equipment sector

The physical infrastructure of country such as bridges and roads affect the use of automobiles. If there are smooth roads available then it will affect the use of automobiles. The environment and weather conditions also affect the use of automobiles in the country. If the environment is pleasant then the use of automobiles will be more. The entry of global companies in the Indian environment has led to advancement in the products and the production process of Mahindra and Mahindra.

Hospitality sector

The environmental factors gained prominence because of deteriorating environmental balance which is threatening the sustainability of environment and nature. Hospitality sector is very much responsible for releasing out chemical effluence drained out in water making it unfit for use and also the draining out non bio degradable recourses such as polythene in the environment affecting the chain adversely. There has been many rules and act passed for this sector which the companies have to work accordingly. This industry is directly influenced by tourism. The natural and cultural sites led to attraction of tourists and also the natural landforms and environmental conditions influence the choice of destination of Mahindra hotels which has led to its growth.

Information technology sector

The ecological environment has affects and influence in IT sector in various ways. For this there have been conservation and protection issues because of deteriorating environmental balance. Largely, businesses are also held responsible for such situations as emissions from these industries pollute water, air and effect bio chain adversely and expose people to hazardous radiations bringing their lives in danger. These have implications for various firms in this sector and how the manufacturing process takes place in Tech Mahindra.

Figure 2: EPS of Mahindra and Mahindra.

Table 3: Increase in the turnover of Mahindra and Mahindra.


Mahindra and Mahindra has grown steadily in size and structure and has evolved into a huge group and occupies a premium position in various key sectors of the economy. It has gained a substantial and a sustainable growth in the industry by coping up with various changes in the environment it exists in. The above mentioned factors has impacted its various business sectors and led to the formation of a highly successful company.

The above analysis leads us to the conclusion that Mahindra and Mahindra have transformed themselves into a very successful business enterprise and have evolved themselves as a very important constituent of the Indian and the global economy. Mahindra and Mahindra have expanded themselves into various industrial sectors like defence, automobile, hospitality etc. and have diversified at the same time. Mahindra and Mahindra has shown that how the various changes in the business environment can be explored and exploited by any business for its own gain and the gain of the economy as a whole.