Introduction

Business: Business is a human activity carried out by the unified efforts

of different categories of people, to produce the wealth through
production and distribution of the goods and services

Environment: The birth, growth and continuous development of

organization are influenced by a wide range of variables like employees,
customers, suppliers, producers, competition etc.

Business Environment: Business Environment refers to those aspects

of the surroundings of business enterprise, which affect or influence its
operations and determine its effectiveness.

According to Keith Davis: “Business environment is the aggregate of

all conditions, events and influence that surrounds and affects it”.

Nature of Business Environment

Complex

Business environment is complex in nature. It consists of several factors,

conditions and events which directly influence the functioning of
business. These factors influence the productivity and profitability of
business.

Dynamic

Business environment is a dynamic concept and keeps on changing

continuously. Various factors which constitute business environment are
always changing from time to time. These changes are in terms of
changes in customer preferences, technological improvements, new
competitor’s entry etc.

Interdependence

Factors of business environment are dependent on each other. Business

environment include economic, social, legal, technological and political
factors. Changes in any one of the factors will bring changes in several
other factors. Like countries having better economy are able to enhance
their technology by incurring sufficient expenditure on research and
development.

Uncertain

Factors which constitute business environment are uncertain. It is quite

difficult to predict several future conditions because no one knows what
is going to happen in nature. These factors change too frequently like
changes in fashion, technology, demand and economic conditions.

Relativity

Business environment is relative in nature which means that it changes

from one place to another and from one country to another. Economic
conditions In Canada are different from those in India.

System Approach
Business environment is a systematic approach which facilitates
business in its functioning. Business is a system which manufactures the
products and services. It satisfies the wants of customers by taking
several inputs like raw materials, capital, labour etc. from environment
and delivering the required goods and services.

Scope of Business Environment

Identifies Business Opportunities and Threats

Business environment helps business in identification of various

opportunities and threats. They can earn maximum returns by availing
such opportunity before the competitors. By proper interaction between
business and its environment all threats can be easily detected. It will
enable business in taking corrective measures timely.

Helps In Planning And Policy Formulation

Proper understanding of business environment helps in formulating

better policies and strategies. It conveys all current information
regarding market conditions to business. All opportunities and threats
are scanned through the study of the business environment. Businessmen
are properly aware of environment and thereby take all decisions
according to it. Their entire plan can be changed effectively and
efficiently through environmental awareness.

Provides Useful Resources

Business depends on the environment in which they operate for several
resources. Business environment supplies several inputs like raw
materials, capital and labour which are used by the business for its
operations. These inputs are converted into goods and services for
satisfying the needs of the market. Without proper supply of inputs,
business cannot continue its operations. It is fully dependent upon
environment for taking inputs and delivering the required goods or
services.

Improves Performance

Business environment has an effective role in accelerating the overall

performance of business organisations. Through continuous
environmental awareness, managers update their knowledge and skills.
Environmental study serves as the medium of educating management.
Monitoring of environment provides qualitative information which helps
in developing strategic thinking. It enables managers to adopt suitable
management practices to control and improve the performance of
business.

Helps In Coping With Rapid Changes

Factors which constitute business environment are dynamic in nature.

They keep on changing continuously from time to time. These changes
include changes in customer’s preferences, fashion, technology,
economic conditions etc.
Proper understanding of the business environment helps business in
detecting all these frequently occuring changes easily. It enables them in
dealing with these changes efficiently by taking appropriate actions at
right time. Managers through continuous monitoring of environment are
sensitive to such changes and respond effectively.

Enhances Business Image

Business through proper understanding of its environment are able to

improve its public image. They are more responsive and sensitive to the
environmental needs through proper knowledge of business
environment. Study of environment provides them information for
making realistic plans and implementing them effectively. Businesses
are able to provide better service and serve the interest of entire society.
People are happy with the business and develop confidence towards it.
This enables in developing a better image in market.

Assist In Facing Competition

Business environment communicates all details about competitors in

market to business. Awareness regarding the actions and strategies of
competitors is crucial for every business for meeting competition
effectively. It helps business in formulating plans and policies in
accordance with the competitor’s actions. Businesses are able to face
challenges and competition in market through systematic planning in an
efficient way.
Social Responsibility Approach

Social responsibility is another important characteristic of business

environment. According to this, business exists for serving various
members of society. These include shareholders, employees, customers,
government etc. and every business should consider their interest while
operating.

Objectives of Business Environment

Knowledge of Information: Every businessman should be aware about

the current environment of the business to change accordingly.

Basis of Decision: It contains all the information which is needed for

taking good decision. e.g. If a business knows about its competitors,
suppliers and customers they take decision about price, purchase, salary
etc.

Helpful in making of policies: For making good business policies one

needs to know and scan business through business environment.

Technological Planning: In today's environment it is really important for

the business houses to keep themselves changing according to the
technological changes in the market.

Survive in the business: Sometimes industry may face recession. In such

condition only those business will survive who estimate this entire
situation in advance through business environment study.
Types of Business Environment

Internal Environment External Environment • Financial Resources •

Physical and human Resources • Objectives of Business • Work
Environment • Corporate Image • Labour management Relationship • 7)
Technological Capabilities Micro Environment Macro Environment.

Internal Environment
Internal environment refers to factors existing within a business firm.
These factors are generally regarded as controllable factors because the
company has control over these factors.  Financial Factors: Factors like
financial policies, financial procedures and capital structure are also
important internal environment affecting business performance,
strategies and decisions.  Physical and Human Resources: The
characteristics of the human resources like skill, quality, moral,
commitment etc., contribute to the strength and weakness of an
organization.  Objectives of Business: The business domain of the
company, direction of development, business policy etc., are guided by
the objectives of the company
Work Environment: The organizational structure, company policies,
extent of professionalism in management etc., are important factors
influencing business decisions.  Company Image and Brand: The image
of the company matters while raising finance, forming joint ventures,
entering purchase or sales contract etc.  Labour Management
Relationship: Factors like the amount of support top management enjoys
from different level of employees, and other participants influences
company decisions and their implementations.  R&D and
Technological Capabilities: It determines a company’s ability to
innovate and compete.

External Environment
The external environment refers to the factors existing outside the
business firm. The external factors are beyond the control of a company;
hence its success depends to the adaptability of the environment. Again
external environment is divided in two parts: 1) Micro Environment 2)
Macro Environment
Micro Environment
The factors which are close to the company and affects its ability to
work constitutes micro environment. It is known as the operating
environment of business. When competing form in the industry have the
same micro elements, the success of the firm depends on their relative
effectiveness in dealing with these elements.
Suppliers: Suppliers are those who supply the inputs like raw material
and components to the company. Uncertainties regarding the supply
constraints the company to maintain high inventories causing cost
increase.
Customers: Success of any business depends upon identifying
customers, their needs, likes etc., and enhancing the level of customer
satisfaction. The major task of a business is to create and sustain
customers.
Competitors: Competitors man’s other business units which are
marketing or producing similar products or a very close substitute of our
product. Business has to adjust its various activities according to the
action and reactions of competitors.
Marketing Intermediaries: These are the firms that aid the company in
promoting, selling and distributing its goods to final buyers. They are the
vital links between the company and the final consumers.
Public: A public is any group that has an actual or potential interest in
or impact on an organization's ability to achieve its interest. Some
companies are seriously affected by such public. E.g. Media
Macro Environment
Macro environment means general environment of business. Macro
forces are uncontrollable in comparison to the micro forces of
environment. The growth and survival of business depends upon its
adaptability to macro environmental factors. The important macro
environment is: 1) Economic Environment 2) Non Economic
Environment
Economic Environment:
To know the economic environment of a country or a business one has
to understand the economic policies of the nation. These policies put
direct impact on the working and success of the business. Economic
conditions, economic policies (Industrial policies, monetary and fiscal
policy etc.) and the economic system are the important factors that
constitute economic environment of the business.
Non-Economic Environment
Socio cultural Environment: The socio-cultural environmental factors
consist of human relationship and the development. Some of the
important factors in the social environment are the buying and
consumption habit of people, their languages, beliefs and values, custom
and traditions, etc that effects the business.
Legal Environment: Every country follows its own system of law. The
companies operating in the global market have to take into account the
provisions with respect to the legal environment prevalent in the
countries which thy do business. These law and regulations affect the
day-to-day operations of business.
International Environment: The international environment is
particularly important for industries directly depending on imports or
exports. E.g. Import export policies of various countries.
Political Environment: The political environment consists of factors
related to the management of public affairs that have a considerable
impact on the business of an organization. It impacts the legislations and
government rules and regulations under which business organizations
operates in a country.
Technological Environment: Technological environment comprises
both machines (hard technology) and scientific thinking (soft
technology) used to solve problems and promote progress. It also
represents the degree of advancement of goods and services that are
prevalent in a country or a region.

Ecological Environment

Ecological factors influencing business are connected to actions and

processes necessary to protect natural environment and in the same time
maintain or increase efficiency of the corporation. Ecology often take
form of so-called corporate environmentalism, i.e. all actions
promoting sustainability, gaining consumer appreciation of eco-
friendly products and services, creating image of responsible
corporation.