4. Business Environment
The word ‘business environment’ indicates the aggregate total of all
people, organisations and other forces that are outside the power
of industry but that may affect its production. According to an
anonymous writer- “Just like the universe, withhold from it the
subset that describes the system and the rest is environment”.
Therefore, the financial, cultural, governmental, technological and
different forces which work outside an enterprise are part of its
environment. The individual customers or facing enterprises as well
as the management, customer groups, opponents, media, courts
and other establishments working outside an enterprise comprise
7. 1. All the external forces:Business Environment includes all the forces, institutions and factors which directly
or indirectly affect the Business Organizations.
2. Specific and general forces:Business environment includes specific forces such as investors, customers,
competitors and suppliers. Non-human or general forces are Social, Legal, Technological, Political, etc. which
affect the Business indirectly.
3. Inter-relation:All the forces and factors of Business Environment are inter-related to each other. For
example with inclination of youth towards western culture, the demand for fast food is increasing.
4. Uncertainty:It is very difficult to predict the changes of Business Environment. As environment is changing
very fast for example in IT, fashion industry frequent and fast changes are taking place.
5. Dynamic:Business environment is highly flexible and keep changing. It is not static or rigid that is why it is
essential to monitor and scan the business environment continuously.
6. Complex:It is very difficult to understand the impact of Business environment on the companies. Although
it is easy to scan the environment but it is very difficult to know how these changes will influence Business
decisions. Some-time change may be minor but it might have large impact. For example, a change in
government policy to increase the tax rate by 5% may affect the income of company by large amount.
7. Relativity:The impact of Business environment may differ from company to company or country to country.
For example, when consumer organisation CES published the report of finding pesticides in cold drinks,
resulted in decrease in sale of cold drinks, on the other hand it increased the sale of juice and other drinks.
10. Dimensions of Business Environment
• Dimensions of or the agents forming the business
environment involve economic, social, legal, technological
and political circumstances which are contemplated
properly for decision-making and enhancing the
achievement of the trading concern. In distinction to the
precise environment, these aspects manifest the prevailing
environment which often affects many companies at the
same time. However, the administration of every business
can profit from being informed of these dimensions rather
than being unbiased in them.
11. Internal Environment
Survival of a business depends upon its strengths and adaptability to the environment.
The internal strengths represent its internal environment. It consists of financial,
physical, human and technological resources. Financial resources represent financial
strength of the company. Funds are allocated over activities that maximise output at
minimum cost, that is, optimum allocation of financial resources.
Physical resources represent physical assets such as plant, machinery, building etc. that
convert inputs into outputs. Human resources represent the manpower with
specialised knowledge that performs the business activities.
The operative and managerial decisions are taken by the human resources.
Technological resources represent the technical know-how used to manufacture goods
and services. Internal environment consists of controllable factors that can be modified
according to needs of the external environment.
12. External Environment
The external environment consists of legal,
political, socio-cultural, demographic factors etc.
These are uncontrollable factors and firms adapt to
this environment. They adjust internal
environment with the external environment to take
advantage of the environmental opportunities and
strive against environmental threats.
14. Micro Environment
“The micro environment consists of factors in the
company’s immediate environment”. These factors affect
the performance of a company and its ability to serve the
customers. Micro environment consists of customers,
suppliers, competitors, public and market intermediaries.
16. Macro Environment
The macro environment consists of the
economic and non- economic variables that
provide opportunities and threats to firms. This
is largely uncontrollable and, therefore, firms
adjust their operations to these environmental
17. Macro Environment
It consists of following:
• Legal Environment
• Political Environment
• Economic Environment
• Social Environment
• Technological Environment
18. Legal Environment
It includes various laws passed by the government, administrative orders issued
by government authorities, court judgments as well as decisions rendered by
the central, state or local governments.
Understanding of legal knowledge is a pre-requisite for the smooth functioning
of business and industry.
Understanding the legal environment by business houses help them not to fall in
a legal tangle.
The legal environment includes various laws like Companies Act 2013, Consumer
Protection Act 1986, Policies relating to licensing & approvals, Policies related to
foreign trade etc.
Example: Labour laws followed by companies help them to keep away from
19. Political Environment
It means that the actions were taken by the government
which potentially affect the routine activities of any business
or company on a domestic or at the global level.
The success of business and industry depends upon the
Government’s attitude towards the business and industry,
Stability of Government, Peace in the country.
Example: Political stability and central government’s
attitudes towards business, industry and employment, has
attracted many national and international business
entrepreneurs to invest in India.
20. Economic Environment
The economic environment consists of an economic system,
economic policies and economic conditions prevailing in a
Interest Rates, Taxes, Inflation, Stock Market Indices, Value of
Rupee, Personal Disposable Income, Unemployment rate etc.
are the factors which affect the economic environment.
Example: A rise in the disposable income of people due to a
decrease in tax rates in a country creates more demand for
21. Social Environment
It onsists of social forces like traditions, values, social trends, level of education, the
standard of living etc. All these forces have a vast impact on business.
Tradition: It refers to social practices that have lasted for decades, such as Ugadi,
Deepavali, Id, Christmas,etc.,
Impact: More demand during festivals provides opportunities for various businesses.
Values: It refers to moral principles prevailing in the society, such as Freedom of choice in
the market, Social Justice, Equality of opportunity, Non-discriminatory practices etc.
Impact: The organisations that believe in values maintain a good reputation in society and
find ease in selling their products.
Social Trends: It refers to a general change or development in the society, such as health
and fitness trend among urban dwellers.
Impact: Health and fitness trend has created demand for gyms, mineral water etc.
22. Technological Environment
It consists of scientific improvements and innovations which provide
new ways of producing goods, rendering services, new methods and
techniques to operate a business.
It is very important for a firm to understand the level of scientific
achievements of a particular economy before introducing its products.
Technological compatibility of products also drives the demand for
manufactured products by a company.
Example: E-commerce has changed the scenario of doing the business,
buying goods and availing services at the click of a mouse or through
mobile, Digital India initiative by the government and move towards a