Business Environment & Its Importance and Dimensions

Meaning of Business Environment

It refers to all condition events and influences that surround and affect it.

Economic, social, political and other forces which operate outside business are part of business environment.

Business environment can be classified into two major groups:

1.Economic environment

2.Non- Economic environment

Features of Business Environment

1. External forces: It includes all the factors which are external to business organizations.

2. Specific and general forces: specific forces are those which affect business enterprises directly in their day to day working.

Example: suppliers, customers etc. General forces are those forces like social, political which have impact on all the enterprises indirectly.

3. Uncertainty: as we know that environment is changing very fast so it is very difficult to predict the changes.

Example: Change in fashion.

4. Dynamic: Business environment is highly flexible so it is very essential to monitor and scan the business environment.

5. Relativity: Business environment differ from country to country their cultures are different.

Example– there may be more demand for suits and sarees in India as compare to other countries.

Importance of Business Environment

1. Identify opportunities and first mover advantage: Those businessman who are able to understand and scan the opportunities of business environment at early stages they can capture a big share in the market.

For example: Maruti was the first company to recognize the need for small cars in an environment of rising petrol prices and large middle class people so they became leader in the market.

2. Helpful in assembling resources: To supply output businessmen need input and raw materials they select resources according to availability in environment.

Example: with the demand of LED T.V. they collect resources necessary to manufacture LED T.V. rather than collecting resources of black and white T.V.

3. Help to adjust with the changes: Business environment scanning helps the companies to scan and understand these changes with environment scanning. So they have to make changes in their internal environment also to match the external environment.

4. Helpful in making planning and policy: Plans and policies are formed keeping in mind business environment because it have to be implemented in the presence of environmental factors.

5. Improvement in performance: By continuous scan of business environment business can easily improve their performance and they can prosper and improve their market share.

Dimensions of Business Environment

Dimensions of business environment mean all the factors which have direct or indirect influence over the business events. Major components of Environment are:

  1. Economical environment
  2. Social environment
  3. Political environment
  4. legal environment
  5. Technological environment

1. Economical Environment

Economic environment refers to all the forces which directly influence the economy of your country.

Example: Gross domestic product, productivity and employment rate, Industrial and fiscal policy of the government etc.

Some aspects of Economic environment are:

  • Increase in GDP result in rise in disposable income of people .
  • High inflation rate.
  • Decrease in interest rate.
  • Role of private and public sector.
  • Rate of saving and investment.
  • Money supply in the economy.

2. Social Environment

Social Environment include of traditions of the society. It includes the standard of living, taste, preferences and education level of the people living in the society.

Examples of social Environment: celebration of Diwali, Id, Christmas etc. increase the sale of sweets, greetings cards, etc.

Common Factors of Social Environment are:

  • Reservation in jobs for minority and women.
  • Equal wages for male and female workers.
  • Demand for luxury items in middle class families.
  • Health and fitness trend has become popular.
  • Birth rate and death rate.

3. Political Environment

Political environment includes all the factors related to attitude of government towards different groups of societies, policy changes by different governments etc.

Common factors which influenced the Indian political environment are:

  • Skill India Movement started by government.
  • constitution of the country.
  • Government intervention in business.
  • Foreign policy of government.

4. Legal Environment

Management of every business enterprise has to obey the law. It is very important for every business enterprise to have knowledge of rules and regulations framed by government. It includes:

  • laws and legislative act.
  • Administrative order issued by government authorities.
  • Companies Act 1956,Industrial Act 1951,FEMA,Consumer protection Act 1986,etc.
  • legal policies related to licensing and foreign trade.
  • Statutory warnings essential to be printed on label. example: Packets of cigarettes must have warning
  • laws to keep a check on advertisements. For example : advertisement of alcohol products is prohibited.

5.Technological Environment

It includes forces related to innovations which provide new ways of producing goods and services. Some technological changes which have effected Indian business:

  • Online sale of grocery items is becoming very common.
  • Online booking of air tickets, movie tickets.
  • Customer can compare the fare prices of various airlines, hotels the help of technological advancement.
  • Innovation in different scientific and engineering fields such as medicines, biotechnology etc.
  • Shift from typewriter to word processors.
  • Development in IT sector.

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