Business Environment Meaning, Definition,Types, Features,Components
Business Environment
Business Environment is the most important aspect of any
business. The forces which constitute the business environment are its
suppliers, competitors, media, government, customers, economic conditions,
investors and multiple other institutions working externally. So let us start
with the introduction to business environment and learn its
importance.
Business Environment Definition
The term “Business environment “is the sum of all
conditions, events, and influences that surround and affect business activities
and growth
Environment consists of factors that
are largely if not totally, external and beyond the control of individual
industrial enterprise and their managements. These are essentially the ‘givers’
within which firms and their management must operate in a specific country and
they vary, often greatly, from country to country.
– Barry
M. Richman and Melvgn Copen
Business
environment is the aggregate of all conditions, events and influences that
surround and affect business.
– Keith
Davis
Components of Business Environment
Internal - It combines the factors that exist
within the company.
·
Human resources
·
Value system
·
Vision and mission
·
Labor union
·
Corporate culture
External - An external Environment includes
those outside factors that exercise an influence on a business’s operations. It
is further classified into two segments.
Macro - Socio-cultural, political, legal, and
global factors fall into this category.
Micro - This environment has a direct and
immediate impact on a business. It consists of customers, investors, suppliers,
etc.
Features of Business Environment
1. The business
environment is the sum of all external factors that affect its growth.
2. The business environment
includes both general and specific forces. Specific forces include investors,
customers, competitors, and suppliers. These factors affect individual
enterprises directly and immediately in their day-to-day working. General
forces include social, political, legal, and technological conditions. The
general forces affect the business environment individually.
3. The business
environment is dynamic.
4. The business
environment is highly uncertain.
5. The business
environment is a relative concept as it differs from country to country and
even region to region.
Dimensions of Business Environment
The dimension of the business environment refers to the
sum of all factors, enterprises, and forces that constitute direct or indirect
influence over business activities. Such five key elements are listed
below.
1. Social Environment
It implies the tradition, culture, customs, and values
of a society in which the business exists. Tradition: In India, festivals
like Diwali, Christmas, and Holi provide a financial opportunity for several
market segments like sweet manufacturers, gifting products suppliers,
etc.
Value: A company that follows long-held
values like social justice, freedom, equal opportunities, gender equality, etc.
excels in that given society.
Recurrent Trends: It refers to development or general
changes in a society like consumption habits, fitness awareness, literacy rate,
etc. which influence a business. For example, the demand for organic vegetables
and gluten-free food is increasing; therefore, companies that manufacture food
items keep this in mind to attract more crowds.
2. Legal Environment
It includes the laws, rules, regulations, and acts
passed by the government. A company has to operate by abiding by the rules and
regulations of laws like the Consumer Protection Act 1986, Companies Act 1956,
etc. A proper understanding of these laws assists in the smooth operations of a
company.
Example: A cigarette-selling company
compulsorily has to put the slogan “smoking is injurious to health” on every packaging.
3. Economic Environment
It involves market conditions, consumer needs, interest
rate, inflation rate, economic policies, etc.
Interest Rate - For example, interest rates of
fixed-income instruments prevalent in an economic environment impact the
interest rate it will offer on its debentures.
Inflation Rate - A rise in the inflation rate leads to
a price hike; hence, it limits businesses. Customer’s Income - If the
income of customer’s increases, the demand for goods and services will rise
too.
Economic Policies - Policies like corporate tax rate,
export duty, and import duty influence a business.
Political Environment
It consists of forces like the government's attitudes
towards businesses, ease-of-doing-business policies, the stability of the
governing body, and peace within the country. All of these factors are
extremely crucial for a company to sustain itself. If the central and local
government sanctions, policies, or acts are in favor of businesses, the
nation's overall economy strengthens due to increasing employment,
productivity, and import and export of various products.
Example - A pro-business government will make
foreign investments more attractive in that country.
Technological Environment
It comprises the knowledge of the latest technological
advancements and scientific innovations to improve the quality and relevance of
goods and services. A company that regularly keeps track of this news can
mould its business strategies accordingly.
Example: A Watch Company that sells smart
watches and traditional watches will prosper as smart watches are trendy
recently.
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