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Business Environment
Commerce Business Environment

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About Business Environment

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Employees, customer demands and

expectations, supply and demand,
management, clients, suppliers, owners,
government actions, technological
innovation, social trends, market trends,
economic changes, and so on are all included
in the de!nition of the business
environment. These factors have an impact
on how business functions and operates,
either directly or indirectly. The Environment
and position of corporations or business
organisations are in"uenced by the sum of
these elements.

The business Environment aids in the

identi!cation of business prospects, the
utilisation of valuable resources, planning,
and the overall performance, growth, and
pro!tability of the company.
MicroEnvironments and macro Environments
are two di#erent sorts of business
Environments.

Business Environment- Introduction

The most crucial part of any !rm is its
Environment. Suppliers, competitors, the
media, the government, customers,
economic conditions, investors, and a variety
of other external entities make up the
business environment. So let us begin by
learning about the business environment
and its importance.

The type of company organisation depends

on a variety of factors, including the nature
of the !rm, the extent of activities, and many
others.

We hear terms like small businesses, big

enterprises, and international corporations
on a regular basis. These concepts are simply
a way of describing business scales.

Business industries, like every other industry,

have seen major changes in the way they
work overtime.

Business Environment signi!es the collection

of individuals, entities and several signi!cant
internal and external factors which control
the productivity and performance of a
business.

An Environment determines the growth,

pro!tability and even longevity of a business
and gets altered by them as well. These
factors in"uence the operations of a
company directly or indirectly depending on
its type.

An awareness of the business Environment

helps businesses in assessing opportunities,
assists in planning and the overall growth of
an organisation.

Components of Business Environment

Internal - It combines the factors that

exist within the company. These are –

Human resources

Value system

Vision and mission

Labour union

Corporate culture

External - An external Environment

includes those outside factors that
exercise an in"uence on a business’s
operations. It is further classi!ed into
two segments.

Macro - Factors like socio-

cultural, political, legal, global fall
into this category.

Micro - This Environment has a

direct and immediate impact on a
business. It consists of
customers, investors, suppliers,
etc.

Dimensions of Business Environment

The dimension of the business Environment
refers to the sum of all factors, enterprises
and forces which constitute direct or indirect
in"uence over Business activities. Such !ve
key elements are listed below.

1. Social Environment

It implies the tradition, culture,

customs, values of a society in which
the business exists.

Tradition: In India, festivals like

Diwali, Christmas, Holi, etc. make
provision for a !nancial
opportunity for several market
segments like sweet
manufacturers, gifting products
suppliers, etc.

Value: A company that follows

long-held values like social
justice, freedom, equal
opportunities, gender equality,
etc., excels in that given society.

Recurrent Trends: It refers to

development or general changes
in a society like consumption
habits, !tness awareness, and
literacy rate, etc. which in"uence
a business. For example, the
demand for organic vegetables
and gluten-free food is
increasing; therefore, companies
which manufacture food items
keep this in mind attract more
crowds.

2. Legal Environment

It includes the laws, rules, regulations,

acts passed by the government. A
company has to operate by abiding by
the rule and regulations of laws like the
Consumer Protection Act 1986,
Companies Act 1956, etc. A proper
understanding of these laws assists in
the smooth operations of a company.

Example: A cigarette-selling company

compulsorily has to put the slogan
“smoking is injurious to health” on
every packaging.

3. Economic Environment

It involves market conditions,

consumer’s need, interest rate,
in"ation rate, economic policies, etc.

Interest Rate- For example,

interest rates of !xed-income
instruments prevalent in an
economic Environment impacts
the interest rate it will o#er on its
debentures.
In"ation Rate- A rise in in"ation
rate leads to price - hike; hence it
poses limitations to businesses.
Customer’s Income- If the income
of customers increases, the
demand for goods and services
will rise too.
Economic Policies- Policies like
corporate tax rate, export duty
and import duty in"uence a
business.

4. Political Environment

It consists of forces like the

government's attitudes towards
businesses, ease-of-doing-business
policies, the stability of the governing
body and peace within the country. All
of these factors are extremely crucial
for a company to sustain. If the central,
as well as local government sanctions,
policies or acts in favour of businesses,
the overall economy of the nation
strengthens due to increasing
employment, productivity and import
and export of various products.

Example - A pro-business government

will make foreign investments more
attractive in that country.

5. Technological Environment

It comprises the knowledge of the

latest technological advancements and
scienti!c innovations to improve the
quality and relevance of goods and
services. A company that keeps track of
this news regularly can mould their
business strategies accordingly.

Example: A Watch Company that sells

smartwatches along with traditional
watches will prosper as smartwatches
are trendy recently.

Solved Questions for you

1. ____________ consists of economic

conditions, economic policies,
industrial policies and economic
systems.

Business Environment

Economic Environment

Natural Environment

None of the above

Ans. b)

2. External Environment of business is

Physical

Demographic

Economic

All of these

Ans. d)

What is the International Business

Environment?
The changing dimension of the business
Environment gives birth to an advanced
international Environment for companies in a
country. It denotes a periphery in which
international companies run their business
transactions across national borders. There
are multiple dimensions of the international
business Environment concerning cultural
di#erences, exchange risks, taxation and
legal issues. It is also known as Globalisation.

Since this Environment lets companies

exchange goods and services with other
countries, the management team must have
a sound knowledge about their operational
market.

Importance of Business Environment

Identi!es business opportunities and

possible threats

Helps in growing a business

Provides scope for learning

E$ciently tackles competitions

Aids in building a brand image

Environment plays a determining role in

establishing a good performing company.
Hence, learning all the essential dimensions
of business Environment class 12 is a must to
achieve a !rm grip on business studies. To
know more about this topic and other allied
topics of business studies, check out
Vedantu’s website today.
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FAQs (Frequently Asked Questions)

1. What are the di#erent components of

the Business Environment?
The components are-

1. Economic Environment:

The macroeconomic indicators should be studied by

the strategist because they have an impact on his
decisions. These indicators in"uence the economy's
health and well-being. These are the factors that
in"uence a company's ability to make money and
produce wealth. Wealth maximisation is more
signi!cant because it entails maximising pro!ts and
reinvesting them in ventures that create further
revenue.

2. Technological Environment:

Rapid technological advancements have a signi!cant

impact on all organisations, not only those in high-
tech industries such as microprocessor
manufacturing, medicines, and !ber-optic
technology. Most commercial and public sector
businesses are a#ected by the combined impact of
computers, digital technology, and
telecommunications.

3. Social Environment:

The term "social Environment" refers to the socio-

cultural setting. The socio-cultural Environment is
made up of value systems, and as a result, society's
attitudes, beliefs, desires, expectations, aspirations,
habits, and customs evolve, creating numerous
opportunities and risks for businesses that serve
society. This socio-cultural Environment
encompasses all facets of society and its members.

4. Demographic Environment:

Demographic characteristics include population size,

birth rate, growth rate, age composition, family size,
level of education, language, caste, income level,
earners and non-earners in a family, and level of
education, language, caste, income level, earners,
and non-earners in a family. The demand for goods
and services is determined by market demand, which
can be either potential or actual. Market refers to
both actual and potential consumers.

5. Political and Legal Environment:

The regulatory Environment refers to the political

and legal Environment. As custodians of citizens,
national, state, and local governments play an
important role. They use regulatory actions such as
constitutional provisions, government programmes,
and industrial rules to safeguard and promote the
interests of citizens.

2. What are the dimensions of the business

Environment?

3. What is the importance of the business

Environment?

4. What is the de!nition of a business

Environment?

5. What are the features of the business

Environment?

6. What are the Types of Environment in

Business?

7. Who are the Major Players in the

Business Environment?

8. What does Micro Environment mean?

9. Why is the International Business

Environment important?

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