These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. .y A business does not operate in a vacuum. These factors that happen outside the business are known as external factors or influences. It has to act and react to what happens outside the factory and office walls.

The term business environment implies those external forces. business environment may be defined as all those conditions and forces which are external to the business and are beyond the individual business unit. Remove either value and success becomes impossible. Business environment influence the functioning of the business system. Thus. . factors and institutions that are beyond the control of individual business organisations and their management and affect the business enterprise. but it operates within it. It implies all external forces within which a business enterprise operates. Business environment consist of all those factors that have a bearing on the business.y The formula for business success requires two elements the individual and the environment.

Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement. is aggregative in nature. Specific and general forces: Business environment includes both specific and general forces. shifts in consumer preferences or entry of new competition in the market. General forces have impact on all enterprises and affect an individual firm only indirectly. Specific forces affect enterprises in their day-to-day working. . especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. as such. Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings.Features of business environment Totality of external forces: Business environment is the sum total of all things external to business firms and.


these involve (5M's) Management Manpower Machine Material and Money. It can alter or modify such factors as its personnel. Here there are some internal factors which are generally controllable because the company has control over these factors. like marketing. to suit the environment. and organization and functional means. physical facilities.INTERNAL ENVIRONMENT y y y y y y y The internal environment is the environment that has a direct impact on the business. . Internal factor .

the mission and the objectives of the organization. y B) MISSION. . The mission is the medium through which the objectives are achieved. Vision is an important factor in achieving the objectives of the organization. y C) MANAGEMENT STRUCTURE AND NATURE The structure of the organization also influences the business decisions. business policies and practices. influences the decisions of business as they are internal factors .VISION AND OBJECTIVES Vision means the ability to think about the future with imagination and wisdom.y A) VALUE SYSTEM The value system of the founders and those at the helm of affairs has important bearing on the choice of business. The structure and style of the organization may delay a decision making or some other helps in making quick decisions. The organizational structure like the composition of board of directors .

The factors are uncontrollable by the business. *Suppliers An important force in the micro environment of a company is the suppliers. There are two types of external environment: The micro environment is also known as the task environment and operating environment because the micro environmental forces have a direct bearing on the operations of the firm. *Marketing Intermediaries The marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. *Financers The financers are also important factors of internal environment. *Public Public can be said as any group that has an actual or potential interest in or on an organization s ability to achieve its interest. y Micro Environment .EXTERNAL ENVIRONMENT y It refers to the environment that has an indirect influence on the business.. i. *Customer The major task of a business is to create and sustain customers. Public include media and citizens. A business exists only because of its customers. those who supply the inputs like raw materials and components to the company.e.

the success of company depends upon its adaptability to the environment. Sociological factors such as costs structure. Technical Environment The business in a country is greatly influenced by the technological development. Political Environment The political environment of a country is influenced by the political organizations such as philosophy of political parties. The technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used.y Macro Environment Macro environment is also known as General environment and remote environment. Social Environment The social dimension or environment of a nation determines the value system of the society which. Macro factors are generally more uncontrollable than micro environment factors. Economic Environment Economic environment refers to the aggregate of the nature of economic system of the country. . Legal Environment Legal environment includes flexibility and adaptability of law and other legal rules governing the business. mobility of labour etc. It may include the exact rulings and decision of the courts. the socio-economic infrastructure etc. ideology of government or party in power. nature and extent of bureaucracy influence of primary groups etc. When the macro factors become uncontrollable . customs and conventions. have far-reaching impact on the business. business cycles. in turn affects the functioning of the business.

Changing External Environment Markets are changing all the time. however a business needs to react or lose customers. Some of the main reasons why markets change rapidly: Customers develop new needs and wants. increases minimum wage. New competitors enter a market. New technologies mean that new products can be made.g. It does depend on the type of product the business produces. Government introduces new legislation e. A world or countrywide event happens e. Gulf War or foot and mouth disease. y y y y y .g.

make some workers redundant y y y y y y y y . do more advertising.g. a shopping mall or city centre arcade close rivalry. A few large rival firms e. washing powder or Coke and Pepsi. use cheaper materials.g. but costs money) Cut costs. A business could react to an increase in competition (e. The amount and type of competition depends on the market the business operates in: Many small rival businesses e. A rapidly changing market e.Business and Competition Though a business does not want competition from other businesses. e.g. where the technology is being developed very quickly the mobile phone market.g.g. increase brand loyalty.g. a launch of rival product) in the following ways: Cut prices (but can reduce profits) Improve quality (but increases costs) Spend more on promotion (e. inevitably most will face a degree of competition.

because parents feel their children are having too much sugar in their diets. Legislation covers a number of the areas of responsibility that a business has with its customers.g. . employees and other businesses. The business also needs to be aware of their social responsibilities.Social Environment and Responsibility Social change is when the people in the community adjust their attitudes to way they live. e. Businesses will need to adjust their products to meet these changes. taking sugar out of children s drinks. These are the way they act towards the different parts of society that they come into contact with.

These extra benefits and costs are distinguished from the private benefits and costs directly attributable to the business. for instance pollution. A social benefit is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer. They also discourage social costs with fines.g. regional assistance for undeveloped areas). taxes and legislation. For example. A social cost is where the action has the reverse effect there are costs imposed on the rest of society. These are known as the social benefits and social costs. These extra cost and benefits are known as externalities external costs and benefits. . Governments encourage social benefits through the use of subsidies and grants (e.It is also important to consider the effects a business can have on the local community. the building of an attractive new factory provides employment opportunities to the local community.