Chapter 1 - Business Environment

Learning Objectives:

 After studying this chapter, you should understand:

1.    Concept of Business Environment.
2. Importance of Busniness Environment
3. Dimensions of Business Environment- Elements of Business Environment
4. Micro Environment
5. Macro Environment
6. SWOT Analysis

Concept of Busines Environment

Business environment refers to sum total of all individuals, institutions and forces that lie outside a business enterprise but may influence its functioning and performance.

Business environment is a combination of internal and external factors that influence a company’s operations. The business can include factors such as ; clients, suppliers; its competition and owners; improvements in technology; Government laws and activities; and market, social and economic trends etc.

  Main Features;

                       The main features of business environment are:

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 etc. which influence specific enterprise directly. 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. Shift in tastes and preferences, development of new technology, completion, are examples of dynamic nature of business inv.

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. Similarly other social, economic, political technological factors may also have a deep effect on the company operations and profits.

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.

Importance of Business Environment:

1. First Mover Advantage:
2. Early Warning Signal
3. Customer Focus:
4. Strategy Formulation:
5. Coping with Change:
6. Public Image:
7. Contiuous Learning