UNIT 3

1.6 MEANING OF BUSINESS ENVIRONMENT

Business environment implies all the internal and the external factors that have an impact on the
business. The factors may be the internal power relationship and orientation of the organization,
government policies and regulations etc.

The term ‘business environment’ means the sum total of all individuals, institutions and other forces like
government policies and regulations, nature of the economy, socio cultural factors, demographic
factors, natural factors etc. that may affect the performance of business. Business environment is the
combination of internal and external factors that influence a company’s operating system. Business
environment are of two types:

1. Internal environment: The factors that are internal to the organization

2. External environment: The factors that are external to the organization

From the above section it is become clear that every business organization is a part of the business
environment, within which it operates. No entity can function in isolation because there are many
factors that are directly or indirectly related to the business, which is known as business environment.

1.7 MICRO AND MACRO ENVIRONMENT

The external environment is broadly classified into two categories,

i.e. microenvironment and macro environment.

Let us discuss these in detail in the following sections:

(i) Micro Environment of Business: Micro environment refers to the environment which is in
direct contact with the business organization and can affect the routine activities of business
straight away. It is associated with a small area in which the firm functions. Micro
environment deals suppliers, competitors, marketing intermediaries (like dealers,
wholesalers etc,), customers, pressure groups and the general public.
a. Supplier: Banks and other similar organizations that supply money to the organization
are also termed as suppliers. The firms that supply raw materials and machineries are
also included in suppliers.
b. Customers are also an important factor in the micro environment of business. The
customers or the clients absorb the output of an organization and a business exists to
meet the demands of the customers. Customers could be individuals, industries,
government and other institutions.
 c. Labor force is also an important part of the internal environment of business. The
employees of the business enterprise produce and provide the services for the
customers.
d. In addition to the above, the advertising agencies, business associates, competitors,
regulatory agencies and the marketing intermediaries are also a part of the micro
environment.
(ii) Macro environment of Business: Macro environment refers to the forces and institutions
outside the organization that can potentially affect the performance of the organization.
These forces originate beyond the firm’s operating situation. The study of Macro
Environment is known as PESTLE Analysis. PESTLE stands for the variables that exist in the
environment, i.e. Population & Demographic, Economic, Sociocultural, Technological, Legal
& Political, and Environmental. These variables, encompass economic and non-economic
factors like social concerns, government policies, family structure, population size, inflation,
GDP aspects, income distribution, ethnic mix, political stability, taxes and duties etc.

1.7.1Differences between Micro Environment and Macro Environment

The following are the major differences between micro and macro environment:

1. Micro environment is the environment which is in immediate contact with the firm. The
environment which is not specific for a particular firm but has the ability to influence the
working of all the business groups is known as Macro Environment
2. Micro Environment may also be considered as internal environment of business, whereas Macro
Environment is the external environment.
3. The factors of the micro environment affect the particular business only, but the macro
environmental factors affect all the business entities.
4. The micro environmental factors are controllable by the business to some extent; however, the
macroeconomic variables are uncontrollable.
5. The elements of the micro environment affect directly and regularly on the firm; in case of the
macro environment it is not that direct and regular.