Business Environment
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Business Environment
 The success of every business depends on adapting itself to the environment within which it functions. For example, when there is a change in the government polices, the business has to make the necessary changes to adapt itself to the new policies. Similarly, a change in the technology may render the existing products obsolete, as we have seen that the colour television has made the black and white television out of fashion. Again a change in the fashion or customers’ taste may shift the demand in the market for a particular product. All these aspects are external factors that are beyond the control of the business. So the business units must have to adapt themselves to these changes in order to survive and succeed in business. Hence, it is very necessary to have a clear understanding of the concept of business environment and the nature of its various components.
Concept of Business Environment
 The term ‘business environment’ connotes external forces or factors that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc. While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business decisions of a firm.
Features of Business Environment
 Totality of external forces
 Specific and general forces
 Dynamic nature
 Uncertainty
 Relativity (e.g. demand for sarees may be fairly high in India whereas it may be almost non-existent in France.)
Elements of Environment: internal & external
Internal Environment
 Objectives of Business
 Different departments of the organisation
 Management & Employees
 Labour Management Relationship
 Corporate Image
 Physical Resources
 Financial Resources
 Vision of Top Management
 R & D Capabilities
So Internal Environment includes 5 Ms
 Men
 Material
 Money
 Machinery
 Management
 External environment
Micro/Operating Environment
 Suppliers
 Customers
 Market Intermediaries
 Competitors
 Public
 Macro/General Environment
1). Economic Environment
survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are
i) Industrial policy: The Industrial policy of the government covers all those principles, policies, rules, regulations and procedures, which direct and control the industrial enterprises of the country and shape the pattern of industrial development.
(ii) Fiscal policy: It includes government policy in respect of public expenditure, taxation and public debt.
(iii) Monetary policy: It includes all those activities and interventions that aim at smooth supply of credit to the business and a boost to trade and industry.
2) Social Environment
The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods.
3) Political Environment
This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.
4) Legal Environment
This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include:
1. Companies Act, 1956
2. Foreign Exchange Management Act, 1999
3. The Factories Act, 1948
4. Industrial Disputes Act, 1972
5. Payment of Gratuity Act, 1972
6. Consumer Protection Act, 1986
7. Environment Protection Act
8. Competition Act, 2002
5) Technological Environment
Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. Now a days infact, no firm can afford to persist with the outdated technologies.
6) Demographic Environment
This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas.
7) Natural Environment
The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown.
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