Business environment

The environment that contains the various factors that are subject to influence in the process of the
implementation of Business activities is called the Business Environment. The businesses require
undergoing changes continuously due to the fact that environmental forces are also dynamic and
businesses need to adhere to them. Successful businesses continuously study the business
environment to identify new business opportunities through the changes in environmental forces
and different trends arising in the environment and adopt their business activities accordingly.

Classification of business environment

Internal environment

Internal environment of a business can be defined as the different parties and forces acting within
a business and affecting a business. The parties comprise the internal environment of a business
are owners, managers and employees.

Owners

Owners are the persons providing the required capital for a business. Owners contribute to the
success of the business through their financial strength, business knowledge and experience.
Managers

Managers are the persons taking decisions to direct the resources of a business in order to achieve
the objectives. Some instances owners manage the businesses. The managers are responsible to
build a good relationship between the customers and the employees of a business.

Employees

Employees are persons who duly perform their tasks assigned using their own skills and
competencies. The success of the business is also depended on the dedication and good attitudes
of employees.

External environment

Different parties and forces acting outside the business and affecting a business can be identified
as the external environment.

Customers

Customers are the ones who buy goods and services from a business. Since the survival of a
business depends on its customers, businesses are required to identify different needs and wants
of customers and satisfy them appropriately. The changes in the buying patterns of customers will
have a close impact over the activities of a business.

Competitors

Competitors are the other businesses producing goods or services, which are similar to the goods
or services of a certain business. The way, competitors conduct their business activities, price and
quality of the competitor's products, marketing techniques, etc. would closely influence a business.

Suppliers

suppliers are the parties providing required raw materials and other services to a business. To
ensure continuous operations of a business, it is vital to supply raw materials and other services at
the right time and to provide quality raw materials.
Political environment

This environment comprises of the policies of a government which will have an influence on
businesses. The businesses have to consider these policies when running the operations.

Examples:-

• Infrastructure development policy (Electricity, road ways, water, telecommunication)

• Fiscal policy (Taxes and government subsidies)

Legal environment

The legal environment consists of laws and regulations, enforced in order to protect consumers, to
protect domestic manufacturers and business community and to protect the environment.

Examples:

• Companies Act No. 07 of 2007

• Consumer Affairs Authority Act No. 09 of 2003

• Shop and Office Employees Act No. 14 of 1954

To put these laws and regulations in to action, the government appoints institutions, boards,
commissions and responsible authorities and individuals.

Examples:

• Registrar of Companies

• Consumer Affairs Authority

• Public Health Inspector

• Central Environmental Authority

Due to these legal regulations and institutions, businessmen have limits over their ability to
conduct businesses according to their own will. Every businessman is expected to comply with
these laws and regulations that are applicable, imposed by the government.
Technological environment

The technological environment is the external factors in the technology that impact the businesses.
The technologies grow rapidly due to new innovations resulting to change business activities as
well as life style of individuals.

Changes in technological environment

• Advancement in computer technology

• Advancement in communication technology due to internet

• Advancement in production methods due to nano technology and digital technology

• Advancement in transportation technology

Examples for the changes occurred in the business environment due to changes in technology.

Some goods and services become outdated rapidly due to rapid changes in the technology.

Ex:
Economic environment

Economic environment consists of economic factors that affect businesses. The government of a
country is mainly responsible for setting economic policies.
Global environment and business activities

Globalization is ……………………………………………………………………………………
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Due to the advancement in information and communication technology, the entire world has now
become a single global village. Goods and services, labour and capital, etc. are moved between
countries by reducing the distance among the people in different countries.
Therefore, changes in different factors in the global environment will have both positive and
negative impacts on domestic businesses.

Positive impacts from the global environment on domestic businesses

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Negative impacts from the global environment on domestic businesses

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Every internal and external environment factor mentioned above will have an impact either
positively or negatively to businesses. The businessmen are required to study the business
environment in order to identify these conditions.
SWOT analysis is an important framework prepared by the businesses to evaluate both internal
and external environment.

S-
W-
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The strengths and weaknesses of a business can be identified by studying the internal environment.
The strengths can be used to grow a business, whereas weaknesses are to be minimized.

Opportunities and threats available for a business can be identified by analyzing external
environment. Hence, the businessmen can exploit the opportunities and face the threats
successfully.

Strengths

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Weaknesses

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Opportunities

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Threats

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Successful businesses continuously pay their attention on the internal and external environment in
order to exploit its strengths and opportunities to achieve growth in the business and take necessary
steps to minimize or avoid weaknesses and threats to ensure the business stability.