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Business Environment Notes

Business Environment Notes covers Meaning of business environment, Features of business environment, Importance of business environment, Vision and mission statement, Internal to Organisation, External to Organisation, Vision Statement, Mission Statement, Types of business environment, Internal environment, Human Resource, Financial Factors,etc.

business environment definition

The term ‘business environment’ connotes external forces, factors and institutions 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. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.

Business Environment has been defined by Bayard O. Wheeler as “the total of all things external to firms and industries which affect their organization and operation”.

According to Arthur M. Weimer, business environment encompasses the ‘climate’ or set of conditions, economic, social, political or institutional in which business operations are conducted.

According to Glueck and Jauch, “The environment includes factors outside the firm which can lead to opportunities for or threats to the firm. Although there are many factors, the most important of the sectors are socio-economic, technological, supplier, competitors, and government.”

According to Barry M. Richman and Melvgn Copen “Environment consists of factors that are largely if not totally, external and beyond the control of individual industrial enterprise and their managements.
These are essentially the ‘givers’ within which firms and their management must operate in a specific country and they vary, often greatly, from country to country”.
From the above definitions we can extract that business environment consists of factors that are internal and external which poses threats to a firm or these provide opportunities for exploitation.

importance of business environment

The importance of the business environment can be neatly understood if we consider the following facts:

1. Enables to Identify Business Opportunities

All changes are not negative. If understood and evaluated them, they can be the reason for the success of a business. It is very necessary to identify a change and use it as a tool to solve the solve the problems of the business or populous.
For example, Mr. Phanindra Sama was troubled by the ticket booking condition in India. He used to travel a long distance to his travel agent to book his ticket but even after traveling this distance he was not sure if his seat was confirmed. He saw the opportunity to establish an app in the face of the problem and co-founded the online ticket booking app called ‘redBus’.

2. Helps in Tapping Useful Resources

Careful scanning of the Business Environment helps in tapping the useful resources required for the business. It helps the firm to track these resources and convert them into goods and services.

3. Coping with Changes

The business must be aware of the ongoing changes in the business environment, whether it be changes in customer requirements, emerging trends, new government policies, technological changes. If the business is aware of these regular changes then it can bring about a response to deal with those
changes. For example, when the Android OS market was blooming and the customers were preferring Android devices for its easy interface and apps, Nokia failed to cope with the change by not implementing Android OS on Nokia devices. They failed to adapt and lost tremendous market value.

4. Assistance in Planning
This is another aspect of the importance of the business   environment. Planning purely means what is to be done in the future. When the Business Environment presents a problem or an opportunity, it is up to the business to decide what plan would it have to come up with in order to address the future and solve the problem or utilise the opportunity. After analysing the changes presented, the business can incorporate plans to counteract the changes for a secure future.

5. Helps in Improving Performance

Enterprises that are thoroughly scanning their environment not only deal with the changes presented but also flourish with them. Adapting to the external forces help the business to improve the performance and survive in the market.

environmental factors affecting business

The environmental factors affecting business are:

1. Demographic Factors

Demography is a study of human population with reference to its size, density, distribution and other connected vital statistics. This information is very essential in modern days for planning and development and also for framing laws relating to society and business. The density of population, the extent of their standard of living, the level of their education and the nature of their occupation etc.,
greatly influence the type of business the entrepreneurs could undertake. The business units require customers for its survival and growth; naturally business can thrive in populace regions, though now-a day’s transportation helps a lot in bringing the commodities to the scarcely populated areas.

2. Economic Factors

The business enterprise is affected by various economic forces which cannot be controlled by the business. These economic forces, can be divided into two categories, ie. Demand Force and Competitive Force. For a business firm to survive and thrive, it should have adequate demand for its products. At the
same time, the firm has to complete with the rival firm producing similar products or substitute products.

Economic forces affecting demand:For customers to buy the commodity of the firm, they should have the ability to buy and willingness to buy. The ability to buy a commodity depends on the income of the customer, to be very precise, the disposable income of the customer. Out of the total income, the individual has to pay taxes due to the government and the disposable income will be less if the taxes are high. Secondly, if the individual wants to save more, the amount for spending will be less. Thus, the ability to buy a commodity depends on the a) Total income earned out of the employment of the individual b) The taxes of the government and c) The savings of the individual.
An increase in tax will reduce the demand for the commodity. The attitude of the individual towards ‘Saving’ will affect the demand. A change in ‘Price’ of the commodity will affect the demand. Expectation of a further change in price or change in taxes will also affect the demand. Competitive forces: The competitive tools are price cutting, advertisement,product differentiation,  marketing strategiesand consumer service. Price cutting: Price cutting or price reduction is a method which has to be adopted very cautiously, as it may ultimately lead to price-war between firms competing, resulting in reduction of profits.
Advertisement: Advertisements in modern days have become a very powerful tool in persuading the consumers of a product to a particular brand. In monopolistic competition, a large share of the market is entrenched by firms making effective and aggressive advertisement. Product differentiation: A firm tries to get competitive strength by differentiating its product from those
of its rivals. By having special design, colour, packing and features, the firm tries to get competitive edges. Marketing strategies and Consumer Service: Modern firm adopt various types of marketing strategies to create market for their products. Installment system, credit system, hire-purchase, etc., are the
prominent ways by which firms try to cut through the poor segments of the society and convert them their customers. Besides customer service like, free door delivery, quick service, after sales service, guarantee from defects up to a certain period are adopted to have more and more demand for their

3. Geographical and Ecological Environment

Geographical conditions, to a greater extent, influence the type of industries and business in a region. Generally, the people of a particular geographical region will have similar tastes, preferences and requirements. The geographical situation, the physical feature, the climate, rainfall, humidity, the vegetation, etc., decide the type of living in a particular region and only those industries which could cater to the needs of the people, could develop. In other words, geographical conditions exert profound influence on the location of the business.
Ecological is a study “dealing with the interaction of living organism with each other and with their non-living environment”. It is a science telling about the relationship of all living beings. (ie., human beings, animals, plants) with non- living beings (air, water, soil represented by atmosphere, rivers, lakes,
mountains and land).

4. Social and Cultural Environment

Social and Cultural attitudes of a region influence the business organizations of the region influence the business organizations of the region in a verity of ways. The business practices and the management technique of the organization should cope with the social and cultural attitudes of the people. The modern business is a social system in itself, but it is also part of a larger social system represented by society in general. Clearly, there should be some reciprocal relationship between business and this larger society. To put it shortly, the business should adopt itself to the social and cultural environment. It is the class structure of the society. It tells about the social roles and organizations and the
development of social institutions. The class-structure depend upon the occupation of the people, their education, income level, social status, their mobility, their attitude towards living, work and social relationship and above all, their attitude towards business. Every society develops its own ‘culture’ which means how the members of that society behave and interact with each other in society, as well as outside society. The term culture includes values, norms,
customs, ethics, goals and other accepted behavior patterns.

5. Political and Legal Environment

Political Environment: All business firms are directly affected to a greater or lesser degree by the government and its programmes. Political forces will decide the nature of business, programmes and projects to be undertaken for the development of the country. These political forces can be classified as long term forces, quick changes, cyclical changes and regional factors. Long term forces denote the secular trends in business activities due to the political conditions prevailing and the adoption of a particular line of policy in business.

Quick Changes consist of sudden political changes due to army coup or revolt or capturing of the government machinery by the dissident group. The quick change may also be the result of proclamation of ‘emergency’ or ‘Martial Law’ due to sudden outbreak of war with a belligerent nation. In all these cases, the business manager has to take quick decisions to adopt his business to the changed environment. Cyclical Changes denote periodical anticipated changes like ’General Election’ which may change the government and consequent change in plans and programmes as well as priorities by the new Government.
Regional Factors the regional consideration may dominate the political scene. Development of agricultural or development of an industrially backward region may draw the attention of politicians and government. Consequently, special legislations or policies will be framed to help the backward regions or sector. In such changes, the business has to adopt itself by studying and estimating the risks and dangers involved in taking decisions. Legal Environment: Business in a country can be started and nurtured to grow into big business only within the legal system of the country. In this connection, all countries of the word have a separate set of laws for the control and direction of business. The business law of the country is a complex system of regulations and intervention that form the legal environment of the business. All business managers should have the knowledge of business law for taking management decision.

6. Technological Environment

Technology means “the systematic knowledge of the industrial arts”. ‘Technique’ denotes the method of performance. These two are increasingly used in modern literature on industrial production. The present age is the age of technology. Technology affects the business in two ways. Its impact on the society and
Its impact on business operation.

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