Notes - Business Environment

Business Environment

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1. Business Environment means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance.

2. Nature/Features of Business Environment

(i) Totality of External Forces Business environment is the sum total of all those factors\forces which are available outside the business and over which the business has no control.

(ii) Specific and General Forces Specific forces affect individual enterprises directly and immediately in their day-to-day working like, customers, investors. General forces affect all business enterprises indirectly and equally like, political, economic and technological conditions.

(iii) Inter-relatedness The different facts or parts of business environment are closely interrelated.

(iv) Dynamic Nature It is clear that environment is a mixture of many factors and changes in some or the other factors continue to take place. Therefore, it is said that business environment is dynamic.

(v) Uncertainty It is uncertain as it is difficult to predict the behaviour of environmental factors as they continue to change quickly.

(vi) Complexity Business environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in its totality.

(vii) Relativity Business environment is a relative concept since it differs from country to country and even region to region.

3. Importance of Business Environment

(i) Helps to get the First Mover Advantage It helps to recognise opportunities from business environment, thus, taking first mover advantage.

(ii) Helps the Firm to Identify Threats and Early Warning Signals It is necessary to detect warning signals in advance. It enables the managers to make new strategies to handle such threats and minimising its effects.

(iii) Helps in Tapping Useful Resources If growth indicators are available, then business will arrange the human resources, higher working capital etc. in advance to increase production and for other activities like marketing.

(iv) Helps in Coping with Rapid Changes Today's business environment is getting increasingly dynamic where changes are taking place at a fast pace. Therefore, to cope up with rapid changes it becomes necessary for the managers to understand business environment.

(v) Helps in Assisting in Planning and Policy Formation It provides vanoui clues about competitors, investors, customers and employees etc. which help in planning and policy making.

(vi) Helps in Improving Performance Identifying organisational opportunities and threats by scanning business environment and framing polices in the light of strengths and weakness of an enterprise ensuring improvement in organizational performance.

4. Dimensions of Business Environment Dimensions or the factors constituting the business environment consist of the external forces, which directly or indirectly affect the functioning of a business enterprise.

The following are the dimensions of business environment

(i) Economic Environment It consists of the factors and forces concerning with means of production and distribution of wealth, e.g. Balance of trade, balance of payment, money supply in the economy, etc.

(ii) Social Environment It consists of all the social and cultural forces within which business firms operate, e.g. Quality of life, family structure and values, etc.

(iii) Technological Environment It includes forces relating to scientific improvements and innovations, which provide new ways of production, method and techniques, e.g. Innovations and inventions, scientific improvements, etc.

(iv) Political Environment It consists of the forces concerning management of public affairs and their impact on business, e.g. Political structure, political system, foreign policy, trade policy, etc.

(v) Legal Environment It provides the regulatory framework, within which business has to function, e.g. Packets of cigarettes must carry the statutory warning, workers should be paid minimum wages, etc.