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Nature of Business Environment:

The nature of Business Environment is simply and better explained by

the following approaches:

(i) System Approach:

In original, business is a system by which it produces goods and
services for the satisfaction of wants, by using several inputs, such as,
raw material, capital, labour etc. from the environment.
(ii) Social Responsibility Approach:
In this approach business should fulfill its responsibility towards
several categories of the society such as consumers, stockholders,
employees, government etc.

(iii) Creative Approach:

As per this approach, business gives shape to the environment by
facing the challenges and availing the opportunities in time. The
business brings about changes in the society by giving attention to the
needs of the people.

Significance of Business Environment:

Business Environment refers to the “Sum total of conditions which
surround man at a given point in space and time. In the past, the
environment of man consisted of only the physical aspects of the
planet Earth (air, water and land) and the biotic communities. But in
due course of time and advancement of society, man extended his
environment through his social, economic and political function.”

In a globalised economy, the business environment plays an important

role in almost all business enterprises. The significance of business
environment is explained with the help of the following points:

(i) Help to understand internal Environment:

It is very much important for business enterprise to understand its
internal environment, such as business policy, organisation structure
etc. In such case an effective management information system will
help to predict the business environmental changes.

(ii) Help to Understand Economic System:

The different kinds of economic systems influence the business in
different ways. It is essential for a businessman and business firm to
know about the role of capitalists, socialist and mixed economy.

(iii) Help to Understand Economic Policy:

Economic policy has its own importance in business environment and
it has an important place in business. The business environment helps
to understand government policies such as, export-import policy,
price policy; monetary policy, foreign exchange policy, industrial
policy etc. have much effect on business.

(iv) Help to Understand Market Conditions:

It is necessary for an enterprise to have the knowledge of market
structure and changes taking place in it. The knowledge about increase
and decrease in demand, supply, monopolistic practices,

Classification of Objectives of Business:

It is generally believed that a business has a single objective. That is, to

make profit. But it cannot be the only objective of business. While
pursuing the objective of earning profit, business units do keep the
interest of their owners in view. However, any business unit cannot
ignore the interests of its employees, customers, the community, as
well as the interests of society as a whole.

For instance, no business can prosper in the long run unless fair wages
are paid to the employees and customer satisfaction is given due
importance. Again a business unit can prosper only if it enjoys the
support and goodwill of people in general. Business objectives also
need to be aimed at contributing to national goals and aspirations as
well as towards international well-being. Thus, the objectives of
business may be classified as;
A. Economic Objectives

B. Social Objectives

C. Human Objectives

D. National Objectives

E. Global Objectives

Now, we shall discuss all these objectives in detail.

A. Economic Objectives:
Economic objectives of business refer to the objective of earning profit
and also other objectives that are necessary to be pursued to achieve
the profit objective, which include, creation of customers, regular
innovations and best possible use of available resources.

(i) Profit Earning:


Profit is the lifeblood of business, without which no business can

survive in a competitive market. In fact profit making is the primary
objective for which a business unit is brought into existence. Profits
must be earned to ensure the survival of business, its growth and
expansion over time.

Profits help businessmen not only to earn their living but also to
expand their business activities by reinvesting a part of the profits. In
order to achieve this primary objective, certain other objectives are
also necessary to be pursued by business, which are as follows:

(a) Creation of customers:

A business unit cannot survive unless there are customers to buy the
products and services. Again a businessman can earn profits only
when he/she provides quality goods and services at a reasonable price.
For this it needs to attract more customers for its existing as well as
new products. This is achieved with the help of various marketing

(b) Regular innovations:

Innovation means changes, which bring about improvement in
products, process of production and distribution of goods. Business
units, through innovation, are able to reduce cost by adopting better
methods of production and also increase their sales by attracting more
customers because of improved products.

Reduction in cost and increase in sales gives more profit to the

businessmen. Use of power looms in place of handlooms, use of
tractors in place of hand implements in farms etc. are all the results of

(c) Best possible use of resources:

As we all know, to run any business we must have sufficient capital or
funds. The amount of capital may be used to buy machinery, raw
materials, employ men and have cash to meet day-to-day expenses.
Thus, business activities require various resources like men, materials,
money and machines.

The availability of these resources is usually limited. Thus, every

business should try to make the best possible use of these resources.
Employing efficient workers. Making full use of machines and
minimizing wastage of raw materials, can achieve this objective.

B. Social Objectives:
Social objective are those objectives of business, which are desired to
be achieved for the benefit of the society. Since business operates in a
society by utilizing its scarce resources, the society expects something
in return for its welfare. No activity of the business should be aimed at
giving any kind of trouble to the society.

If business activities lead to socially harmful effects, there is bound to

be public reaction against the business sooner or later. Social
objectives of business include production and supply of quality goods
and services, adoption of fair trade practices and contribution to the
general welfare of society and provision of welfare amenities.

(i) Production and Supply of Quality Goods and Services:

Since the business utilizes the various resources of the society, the
society expects to get quality goods and services from the business he
objective of business should be to produce better quality goods and
supply them at the right time and at a right price It is not desirable on
the part of the businessman to supply adulterated or inferior goods
which cause injuries to the customers.
They should charge the price according to the quality of e goods and
services provided to the society. Again, the customers also expect
timely supply of all their requirements. So it is important for every
business to supply those goods and services on a regular basis.

(ii) Adoption of Fair Trade Practices:

In every society, activities such as hoarding, black- marketing and
over-charging are considered undesirable. Besides, misleading
advertisements often give a false impression about the quality of
products. Such advertisements deceive the customers and the
businessmen use them for the sake of making large profits.

This is an unfair trade practice. The business unit must not create
artificial scarcity of essential goods or raise prices for the sake of
earning more profits. All these activities earn a bad name and
sometimes make the businessmen liable for penalty and even
imprisonment under the law. Therefore, the objective of business
should be to adopt fair trade practices for the welfare of the consumers
as well as the society.

(iii) Contribution to the General Welfare of the Society:

Business units should work for the general welfare and upliftment of
the society. This is possible through running of schools and colleges
better education opening of vocational training centres to train the
people to earn their livelihood, establishing hospitals for medical
facilities and providing recreational facilities for the general public like
parks, sports complexes etc.
С. Human Objectives:
Human objectives refer to the objectives aimed at the well-being as
well as fulfillment of expectations of employees as also of people who
are disabled, handicapped and deprived of proper education and
training. The human objectives of business may thus include economic
well-being of the employees, social and psychological satisfaction of
employees and development of human resources.

(i) Economic Well-being of the Employees:

In business employees must be provided with tan remuneration and
incentive for performance benefits of provident fund, pension and
other amenities like medical facilities, housing facilities etc. By this
they feel more satisfied at work and contribute more for the business.

(ii) Social and Psychological Satisfaction of Employees:

It is the duty of business units to provide social and psychological
satisfaction to their employees. This is possible by making the job
interesting and challenging, putting the right person in the right job
and reducing the monotony of work Opportunities for promotion and
advancement in career should also be provided to the employees.

Further, grievances of employees should be given prompt attention

and their suggestions should be considered seriously when decisions
are made. If employees are happy and satisfied they can put then best
efforts in work.

(iii) Development of Human Resources:

Employees as human beings always want to grow. Their growth
requires proper training as well as development. Business can prosper
if the people employed can improve their skills and develop their
abilities and competencies in course of time. Thus, it is important that
business should arrange training and development programmes for its

(iv) Well-being of Socially and Economically Backward

Business units being inseparable parts of society should help
backward classes and also people those are physically and mentally
challenged. This can be done in many ways. For instance, vocational
training programme may be arranged to improve the earning capacity
of backward people in the community. While recruiting its staff,
business should give preference to physically and mentally challenged
persons. Business units can also help and encourage meritorious
students by awarding scholarships for higher studies.

D. National Objectives:
Being an important part of the country, every business must have the
objective of fulfilling national goals and aspirations. The goal of the
country may be to provide employment opportunity to its citizen, earn
revenue for its exchequer, become self-sufficient in production of
goods and services, promote social justice, etc. Business activities
should be conducted keeping these goals of the country in mind, which
may be called national objectives of business.

The following are the national objectives of business.

(i)Creation of Employment:
One of the important national objectives of business is to create
opportunities for gainful employment of people. This can be achieved
by establishing new business units, expanding markets, widening
distribution channels, etc.

(ii) Promotion of Social Justice:

As a responsible citizen, a businessman is expected to provide equal
opportunities to all persons with whom he/she deals. He/ She is also
expected to provide equal opportunities to all the employees to work
and progress. Towards this objectives special attention must be paid to
weaker and backward sections of the society.

(iii) Production According to National Priority:

Business units should produce and supply goods in accordance with
the priorities laid down in the plans and policies of the government.
One of the national objectives of business in our country should be to
increase the production and supply of essential goods at reasonable

(iv) Contribute to the Revenue of the Country:

The business owners should pay their taxes and dues honestly and
regularly. This will increase the revenue of the government, which can
be used for the development of the nation.

(v) Self-sufficiency and Export Promotion:

To help the country to become self-reliant, business units have the
added responsibility of restricting import of goods. Besides, every
business units should aim at increasing exports and adding to the
foreign exchange reserves of the country.

E. Global Objectives:
Previously India had very restricted business relationship with other
nations. There was a very rigid policy for import and export of goods
and services. But, now-a-days due to liberal economic and export-
import policy, restrictions on foreign investments have been largely
abolished and duties on imported goods have been substantially

This change has brought about increase in competition in the market.

Today because of globalisation the entire world has become a big
market. Goods produced in one country are readily available in other
countries. So, to face the competition in the global market every
business has certain objectives in mind, which may be called the global
objectives. Let us learn about them.

(i) Raise General Standard of Living:

Growth of business activities across national borders makes quality
goods available at reasonable prices all over the world. The people of
one country get to use similar types of goods that people in other
countries are using. This improves the standard of living of people.

(ii) Reduce Disparities among Nations:

Business should help to reduce disparities among the rich and poor
nations of the world by expanding its operation. By way of capital
investment in developing as well as underdeveloped countries it can
foster their industrial and economic growth.

(iii) Make Available Globally Competitive Goods and

Business should produce goods and services which are globally
competitive and have huge demand in foreign markets. This will
improve the image of the exporting country and also earn more
foreign exchange for the country

Factors influencing business enviornment

Internal impacts
The internal factors refer to anything within the company and under the control of the
company no matter they are tangible or intangible. These factors after being figured out
are grouped into strengths and weaknesses of the company. If one element brings
positive effects to company, it is considered as strength. On the other hand, if a factor
prevents the development of the company, it is a weakness. Within the company, there
are numerous criteria need to be taken into consideration.

Human resources

It can be said that human element is among the most important factors that internally
exert impacts on the growth of the company. The employees can be either a strength or
weakness of the company depending on the level of practical skills, attitudes toward
work, and so on. For example, if a business has skillful and motivated workers, they are
sure to be the biggest asset of this enterprise. Conversely, employees without carefully
trained and have negative attitudes to their task will be an enormous challenge for the
company to address.

Capital resources

Of course, money is the vital part for any enterprise to perform its plan. No company
can survive without having capital resources. Once a company has enough budgets,
they can easily launch their projects and expand its scale. There are also several ways
for an enterprise to maintain stable budgets by some resources such as investment
opportunities, funding, and annual income.

Operational efficiency

The way an enterprise operates directly affects their success in the marketplace. The
operation of a company includes a bundle of contributing factors such as products,
employees, customers. The business owners need to fully understand how their
products manufactured, how it is consumed and favorable by consumers, how their
employees perform their tasks, what improvements need to be made, etc. Only when
the operator truly knows level of efficiency the company is, can he thinks about
appropriate adjustment methods to handle all current problems.

Organizational structure

To have a suitable organizational structure requires the owners have to consider

carefully set up a system to work smoothly within the company. Whether it is a
centralized or decentralized system, the most important thing is how effective the
structure is when applied for the company. The heads of departments need to make
sure that the information flow is widely conveyed to all customers. Suitable rules and
regulations are being applied to ensure the benefits of employees, and the business as


When you already have well-trained and motivated workers, an effective operational
and organizational system, make sure that the infrastructure of the company are good
enough for all your functions. With the modern and high quality facilities, stable power,
internet and wifi connection, and so on your company is likely to perform better. In other
words, the better your infrastructure, the more opportunities for your company to
perform successfully.


With the fast pace of the fourth industrial revolution, the world is on the ways to strongly
change the life of people including how they work, they communicate with each other.
Therefore, each company also needs to innovate themselves firstly to keep up with the
development of the whole world and secondly to make themselves outstanding among
competitors. Innovations can be taken in manufacturing process, organizational
structure, or even infrastructure.
External factors
On the contrary to internal factors, external elements are affecting factors outside and
under no control of the company. Considering the outside environment allows
businessmen to take suitable adjustments to their marketing plan to make it more
adaptable to the external environment. There are numerous criteria considered as
external elements. Among them some most outstanding and important factors need to
listed are current economic situation, laws, surrounding infrastructure, and customer

Economic situation

Economy is one of the most determining factors to the success of the company even
though it is an external element. Within the economy, some contributing factors such as
the fluctuation of interest rate, economic crisis, and so on directly and strongly affects
the consumption of buyers, and consequently, the profits of businesses.


The rules and regulations from local government play an integral role in the
development of the company. There are some countries which their laws prevents the
development of some certain industries. That can be a threat to the company. On the
other hand, some industries receive positive and continuous support from local
government via their rules and regulations. Besides, if the laws allow organization
outside the countries invest in local industries, they will indirectly create an enormous
source of financial support for local business.

Surrounding infrastructure

Depending only on inside infrastructure is not enough for the company to develop. If
they have a well-structured and modern infrastructure, but the road to access the
company is not well created will be deterrence for the business. They will find trouble in
delivery method and looking for a collaborator. Especially, if your company manufacture
hi-tech devices; however, the outside infrastructure is not suitable to equip these
devices, it would be a big challenge.

Customer demands

We all know that what people want, what people need, and what they demand are
usually different from each other. Customers need something to communicate with their
family member outside their countries, they want to a smartphone which can perform
multi-function; however, they cannot afford that smartphone with a limited budget.
Therefore, their demand is just a typical phone which can perform basic functions. If
your company is not able to figure out what are your customer demands, you will face
difficulty in how to make your products consumed by customers. (Learn how to build
loyal customers for your business)

In conclusion, there is a bunch of contributing factors the success of the company which
comes from both outside and inside a business. Either outside or inside factors are of
utmost importance for the development of the company. If a business hopes to perform
smoothly and successfully, they need to take all these elements into consideration
before making any decision.

Impact of government policies on business enviornment

Governments establish many regulations and policies that guide businesses. Some rules, like minimum wage,
are mandatory, while other policies may influence your business indirectly. Businesses need to be flexible
enough to respond to changing rules and policies. This is true not only at the national level but more locally as
well, as states and municipalities have their own sets of rules. Indeed, there are also international treaties that
can influence the way companies do business.

Market Catalyst

The government can implement a policy that changes the social behavior in the business environment. For
example, the government can levy taxes on the use of carbon-based fuels and grant subsidies for businesses
that use renewable energy. The government can underwrite the development of new technology that will bring
the necessary change. Imposing on a particular sector more taxes or duties than are necessary will make the
investors lose interest in that sector. Similarly, tax and duty exemptions on a particular sector trigger
investment in it and may generate growth. For example, a high tax rate on imported goods may encourage
local production of the same goods. On the other hand, a high tax rate for raw materials hampers domestic

Political Stability

Government policy will always depend on the political culture of the moment. Policy crafted in a politically
stable country will be different that formed in an unstable country. A stable political system can make
business-friendly decisions that promote local businesses and attract foreign investors. Unstable systems
present challenges that jeopardize the ability of government to maintain law and order. This has a negative
affect on the business environment.

Government Spending
Governments get money to spend from taxation. Increased spending requires increases in taxes or borrowing.
Any tax increase will discourage investment, especially among entrepreneurs, who take the risks of starting
and managing businesses. Increased spending also eats into the limited pool of savings, leaving less money for
private investment. Reduction in private investments shrinks production of goods and services. That, in turn,
may lead to the elimination of jobs.

Interest Rates

Government policy can influence interest rates, a rise in which increases the cost of borrowing in the business
community. Higher rates also lead to decreased consumer spending. Lower interest rates attract investment as
businesses increase production. The government can influence interest rates in the short run by printing more
money, which might eventually lead to inflation. Businesses do not thrive when there is a high level of


Trade regulations, the federal minimum wage, and the requirements for permits or licenses have effects on
business. For example, periodic health inspections must be carried out in all restaurants. Businesses might
spend a lot of money and time to comply with regulations that ultimately prove to be ineffective and
unnecessary. Fair and effective regulations, however, promote business growth
Business Ethics and Corporate Social Responsibility

Corporate Social Responsibility, or “CSR,” refers to the need for businesses to be good
corporate citizens. CSR involves going beyond the law’s requirements in protecting the
environment and contributing to social welfare. It is widely accepted as an obligation of
modern business.
CSR goes beyond earning money for shareholders. It’s concerned with protecting the
interests of all stakeholders, such as employees, customers, suppliers, and the
communities in which businesses operate. Examples of CSR include adopting humane
employee practices, caring for the environment, and engaging in philanthropic endeavors.

Some people contend that companies owe no duty to society outside making as much
money as possible within the law. But those who support Corporate Social Responsibility
believe that companies should pursue a deeper purpose beyond simply maximizing profits.

Business ethics

Ethics is a subject of social science that is related with moral principles and social values.
'Business Ethics' can be termed as a study of proper business policies and practices regarding
potentially controversial issues, such as corporate governance, insider trading, bribery,
discrimination, corporate social responsibility, and fiduciary responsibilities.

Businesses must abide by some basic principles. It should provide quality goods and services at
reasonable prices to their consumers. It must also avoid adulteration, misleading advertisements,
and other unfair malpractices.

A business must also perform other duties such as distributing fair wages, providing good working
conditions, not exploiting the workers, encouraging competition, etc.

Business Ethics – Definition

There are many definitions of business ethics, but the ones given by Andrew
Crane and Raymond C. Baumhart are considered the most appropriate ones.

According to Crane, "Business ethics is the study of business situations, activities, and decisions
where issues of right and wrong are addressed."
Baumhart defines, "The ethics of business is the ethics of responsibility. The business man must
promise that he will not harm knowingly."

Features of Business Ethics

There are eight major features of business ethics −

 Code of Conduct − Business ethics is actually a form of codes of conduct. It lets us know
what to do and what not to do. Businesses must follow this code of conduct.

 Based on Moral and Social Values − Business ethics is a subject that is based on moral
and social values. It offers some moral and social principles (rules) for conducting a

 Protection to Social Groups − Business ethics protect various social groups including
consumers, employees, small businesspersons, government, shareholders, creditors, etc.

 Offers a Basic Framework − Business ethics is the basic framework for doing business
properly. It constructs the social, cultural, legal, economic, and other limits in which a
business must operate.

 Voluntary − Business ethics is meant to be voluntary. It should be self-practiced and must

not be enforced by law.

 Requires Education & Guidance − Businessmen should get proper education and
guidance about business ethics. Trade Associations and Chambers of Commerce should
be active enough in this matter.

 Relative Term − Business ethics is a relative term. It changes from one business to another
and from one country to another.

 New Concept − Business ethics is a relatively newer concept. Developed countries have
more exposure to business ethics, while poor and developing countries are relatively
backward in applying the principles of business ethics.

Principles of Business Ethics

The principles of business ethics are related to social groups that comprise of consumers,
employees, investors, and the local community. The important rules or principles of business
ethics are as follows −

 Avoid Exploitation of Consumers − Do not cheat and exploit consumer

with measures such as artificial price rise and adulteration.
 Avoid Profiteering − Unscrupulous business activities such as hoarding,
black-marketing, selling banned or harmful goods to earn exorbitant profits must
be avoided.

 Encourage Healthy Competition − A healthy competitive atmosphere

that offers certain benefits to the consumers must be encouraged.

 Ensure Accuracy − Accuracy in weighing, packaging and quality of

supplying goods to the consumers has to be followed.

 Pay Taxes Regularly − Taxes and other duties to the government must
be honestly and regularly paid.

 Get the Accounts Audited − Proper business records, accounts must be

managed. All authorized persons and authorities should have access to these

 Fair Treatment to Employees − Fair wages or salaries, facilities and

incentives must be provided to the employees.

 Keep the Investors Informed − The shareholders and investors must

know about the financial and other important decisions of the company.

 Avoid Injustice and Discrimination − Avoid all types of injustice and

partiality to employees. Discrimination based on gender, race, religion, language,
nationality, etc. should be avoided.

 No Bribe and Corruption − Do not give expensive gifts, commissions and

payoffs to people having influence.

 Discourage Secret Agreement − Making secret agreements with other

business people to influence production, distribution, pricing etc. are unethical.

 Service before Profit − Accept the principle of "service first and profit

 Practice Fair Business − Businesses should be fair, humane, efficient

and dynamic to offer certain benefits to consumers.

 Avoid Monopoly − No private monopolies and concentration of economic

power should be practiced.
 Fulfil Customers’ Expectations − Adjust your business activities as per
the demands, needs and expectations of the customers.

 Respect Consumers Rights − Honor the basic rights of the consumers.

 Accept Social Responsibilities − Honor responsibilities towards the


 Satisfy Consumers’ Wants − Satisfy the wants of the consumers as the

main objective of the business is to satisfy the consumer’s wants. All business
operations must have this aim.

 Service Motive − Service and consumer's satisfaction should get more

attention than profit-maximization.

 Optimum Utilization of Resources − Ensure optimum utilization of

resources to remove poverty and to increase the standard of living of people.