The Concept of Business Environment, Significance and Nature

Meaning of Business Environment
Environment of Business means the External forces influencing the business Decisions. They can be forces of Economic, Social, Political and Technological forces. These factor are outside the control of the business. The business can do little to change them.

Business Environment

Technological factor Economic Factor Political Environment Legal Factor Business Environment Social Environment Political Environment .

External Forces of Business Environment • Micro environment • Macro Environment  Suppliers  Customer  Marketing Intermediaries  Financiers  Public  Economic  Geographical  Ecological  Social and Cultural  Political & Legal  Technological  Demographic .

External Environment External Environment is not controllable Demographics Social Change Ever-Changing Marketplace Economic Conditions Product Distribution Promotion Price Competition Target Market Political & Legal Factors Environmental Scanning Technology .

they should have the ability to buy and willingness to buy. to be very precise. . Demand Force and Competitive Force Economic Conditions • For customers to buy the commodity of the firm. the ability to buy a commodity depends on the  Total income earned out of the employment of the individual  The taxes of the government and  The savings of the individual. These economic forces. the amount for spending will be less. Thus. The ability to buy a commodity depends on the income of the customer. if the individual wants to save more. the individual has to pay taxes due to the government and the disposable income will be less if the taxes are high. can be divided into two categories.Economic Factors: • The business enterprise is affected by various economic forces which cannot be controlled by the business. Out of the total income. • Secondly. ie. • the disposable income of the customer.

product differentiation. packing and features. quick service. marketing strategies and consumer service. resulting in reduction of profits.. credit system. Besides customer service like. Marketing strategies and Consumer Service: Modern firm adopt various types of marketing strategies to create market for their products. Advertisement: Advertisements in modern days have become a very powerful tool in persuading the consumers of a product to a particular brand. In monopolistic competition. Product differentiation: A firm tries to get competitive strength by differentiating its product from those of its rivals. as it may ultimately lead to price-war between firms competing. free door delivery. Price cutting: Price cutting or price reduction is a method which has to be adopted very cautiously. are the prominent ways by which firms try to cut through the poor segments of the society and convert them their customers. colour.• Competitive forces: The competitive tools are price cutting. a large share of the market is entrenched by firms making effective and aggressive advertisement. etc. after sales service. By having special design. guarantee from defects up to a certain period are adopted to have more and more demand for their commodities. the firm tries to get competitive edges. • • advertisement. Installment system. Continue • • . hire-purchase.

Economic Policy Industrial Policy Fiscal Policy Monetary Policy Foreign Investment Policy EXIM Policy .

Economic System Capitalist Economy Socialist Economy Mixed Economy .

Demographic Factor • Demography is a study of human population with reference to its size. density. the extent of their standard of living. the level of their education and the nature of their occupation etc. greatly influence the type of business the entrepreneurs could undertake .. distribution and other connected vital statistics. • The density of population.

In other words. The geographical situation. (ie. plants) with nonliving beings (air. influence the type of industries and business in a region. • Ecological is a study “dealing with the interaction of living organism with . could develop. It is a science telling about the relationship of all living beings.. rainfall. each other and with their non-living environment”. decide the type of living in a particular region and only those industries which could cater to the needs of the people. to a greater extent. the people of a particular geographical region will have similar tastes. the physical feature. the climate. mountains and land). preferences and requirements. the vegetation. rivers. geographical conditions exert profound influence on the location of the business. humidity. etc. lakes. soil represented by atmosphere.Geographical and Ecological Environment: • Geographical conditions. human beings. Generally. animals.. water.

Every Business organization has to obey and work within the framework of the law. which influence the business organizations and their operations. the important legislation that concern the business enterprise include Companies Act 1965 FEMA 1999 The Factories Act 1948 Industrial Disputes Act 1972 Payment of Gratuity Act 1972 Industries Development and Regulation Act 1951 Essential Commodities Act 2002 The Standard of weight and measurement Act 1956 Monopolies and Restrictive Trade Practices Act ( MRTP)1969 Trade Mark Act (1999) Bureau of Indian Standard Act 1986 Consumer Protection Act 1986 Environmental protection Act Competition Act 2002 Legal Environment               . regulations.• This refers to set of law.

ideology of government or party in power.Political Factor • The political Environment of a country is influenced by the political organizations such as philosophy of political parties. nature and extent of bureaucracy influences of primary groups etc. . the political environment of the country influences the business to a great extent.

techniques and approaches adopted for production of goods and services and its distribution. the varying Technological environments of different countries affects the designing of product .Technological Factors • Technological Environment include the methods.

.  Specific and General Forces: Business Environment includes both specific and general forces. shifts in consumer preferences or entry of new competition in the market.Features of Business Environment  Totally of External Forces: Business Environment is the sum total of all things external to Business firm and as such is aggregative in nature. legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly  Dynamic Nature: Business Environment is dynamic in that it keeps on changing whether in terms of technological improvement. competitors and suppliers) affects individual enterprise directly and immediately in their day-t0—day working. General forces (Such as Social. Political. customers. Specific forces (such as investors.

especially when environment changes are taking place too frequently as in the case of information technology or fashion industry Relativity: Business environment is a relative concept since it differs from country to country and even region to region. differ from those in china or Pakistan. demand for sarees may be fairly high in India whereas it may be almost non-existent in France .Uncertainty: Business Environment is largely uncertain as it is very difficult to predict future happening . for instance. . Similar. Political condition in the USA.

Importance of Business Environment        Determining opportunity and Threats Giving Direction for growth Continuous Learning Image Building Meeting competition Identify Firm’s Strength and Weakness Improving Performance .

understanding and skills to meet the predicted changes in realm of business. The managers motivated to continuously update their knowledge. . Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. It enables the business to identify the areas for growth and expansion of their activities.Determining opportunity and Threats: The interaction between the business and it environment would identify opportunities for and threads to the business. Giving Direction for growth: The interaction with the environment leads to opening up new frontiers of growth for the business firm. Its helps the business enterprises for meeting the challenges successfully. Image Building: Environmental understanding helps the business organization in improving their image by showing their sensitivity to the environment within which they are working.

 Improving Performance: The enterprise that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period .  Identify Firm’s Strength and Weakness: Business environment helps to identify the individuals strengths and weakness in view of the technological and global development. Meeting competition: Its helps the firm to analyze the competitors’ strategies and formulate their own strategic accordingly.

Types of Environment • On the basis of the extent of intimacy with the firm. the environmental factors may be classified into different types 1-Internal Environment 2-External Environment .

Here there are some internal factors which are generally controllable because the company has control over these factor.1-Internal Environment The internal environment is the environment that has a direct impact on the business. The important internal factors which have a bearing on the strategy and other decisions of the internal organization are discussed .

Mission and Vision and Objectives Management structure and nature Value System Internal Power Relationship Internal Environment Miscellaneous Factors Company Image and Brand Equity .

Physically assets and facilities Research and Development Miscellaneous factors Marketing Resources Financial factor .

the mission and objectives of the organization. Management Structure and nature The structure of the organization also influence the business decisions. The organizational structure like the composition of board of directors.Internal Environment Value System: The Value system of the founders and those at the helm of affairs has important bearing on the choice of business. Influences the decisions of Business as they are internal factors. three also The those for a Mission . business policies and practices. Vision and Objectives Vision means the ability to think about the future with imagination and wisdom. The mission is the medium through which the objectives are achieved . mutual co-ordination among three is a an important need business. Vision is an important factors in achieving the objectives of the organization. Internal Power Relationship The relationship among the levels of the organization influences on the business.

Raising the finance 2-Making Joint ventures 3. The human resources in any organization must have characteristics like…. Its helps the 1.• Human Resources: Company image and Brand Equity The human resource is the important factor for any organization as it contributes to the strength and weakness of any organization.Other alliances 4-Expansion and Acquisitions 5-Entering sale and purchase 6-Launching new products 7. 1-Skills 2-Quality 3-High moral 4-Commitment towards the work • 5.Brand equity also help in the company .Attitude etc. The image of the company in the outside market has the impact on the internal environment of the company.

quality of the marketing men. technology ar5e among the factors which influence the competitiveness of the firm. Research and Development: though R &D department is basically done external environment but it has a direct impact on the organization. The proper working of the assets is indeed for free flow of the working of the company.Miscellaneous Physical assets and facilities: facilities like production capacity. Financial Factors: Factors like financial policies: financial positions and capital structure are also important internal environment affecting business performance strategies and decisions . brand equity and distribution network have direct bearing on marketing efficiency of the company. This aspect mainly determine the company’s ability to innovate and compete Marketing Resources: Resources like the organization for marketing.

The factors are uncontrollable by the business. d. Economic Environment Social Environment Political Environment Legal Environment Technical Environment a. e.environment forces have a direct bearing on the operations of the firm Suppliers Customer Marketing Intermediaries Financiers Public Macro-Environment a. There are two types of external environment Micro-Environment The micro environment is also known as the task environment and operating environment because the micro.External Environment: Its refers to the environment that has an indirect influence on the business. b. b. c. d. . c. e.

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