Explanation of Business environment

1. BUSINESS ENVIRONMENT
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2. Business Environment
 It refers to the sum total of those factors which influence the
business and over which the business has no control. It has both
threats and opportunities for the business.
 Threats:- It refers to the negative changes that occurred in the
business environment and hindrance of the organisation.
 Opportunities:- It refers to the +ve change that occurred in the
business environment and helped the organisation to improve the
performance.
 The study of business environment is compulsory for the survival
and growth of the business.

3. Features of Business Environment
 Totality of External Forces:- It is the sum total of those factors/forces which
are available outside the business and over which the business has no control.
 Specific and General Forces:-The forces present outside the busines can be
divided into two parts
 (a) Specific:- These forces affects the firms of an industry separately for
example:- customer, supplier, competitive firm etc.
 (b) General:- These factors affects all the firms of an industry equally for
example, Social, Political, Technological, Legal etc.
 Interrelatedness:-The different factors of business environment are co-
related.
 Dynamic Nature:- As is clear that environment is a mixture of many factors
and change in some or other factors continue to take place.
 Uncertainty:-Nothing can be said with any amount of certainty about the
factors of the business environment because they continue to change quickly.
 Complexity:- Environment based on many factors.All these factors are
related to each other. Their individual effects on the business cannot be
recognised.
 Relativity:-Business environment is related to the local condition and this is
the reason to why business environment happens to be different in different
countries and different even in the same countries at different place.

4. Importance of Business Environment
 First mover advantages:-It enables us to know about the opportunities
available. A company which is more conscious bout the changes taking
place in the business environment is the first mover.
 Warning Signal:- Along with the opportunities provided by the study of
business environment, we also come to know about the threat
accompanying them. If the knowledge about the threat is available in time,
efforts can easily made to face or surmount them.
 Tapping useful resources:- An organisation needs a number of resources
to carry on its business (Man, Material, Machine, Money). With the help of
these resources goods and services are provided.
 Coping with rapid changes:- These days business is being run in a rapidly
changing environment. Various factors connected with business example
competition, fashion, number of customer etc. are changing quickly.
 Assisting in planning and policy formulation:- The knowledge of the
business environment presents the basis for planning and policy.
 Improvement in performance:- In every organisation the study of
business environment has an important role as far as its performance
concerned. Those organisation which keep a constant eye on it and analyse
it correctly definitely win the race and remain alive for a long time.

6. Components of Business Environment
 Internal Environment:-It refers to those factors which influences the
business and present within the business itself and are under the control of
business. Some factors of Internal environment are:-
 Objective of business
 Policies of business
 Production capacity
 Production method
 Management information system
 Participation in Management
 Organisational structure
 Note:- All the above factors do influence the decision of business, but since
all these factors are usually under the control of business, they cannnot be
wholly included in the business environment.

7. External Environment
 It refers to all those factors which influence business and exist outside the
business and business has no control over the factors.
 Some of these factors are those with which a particular company has very
close relation ship.
 Some other factors which influence the entire business community.
 External environment can be divided into two parts:-
 1 (Macro Environment):- It refers to all those external factors which are
closely related to business and influence each industrial unit differently.
 These factors are :-
 Customers:- Customer of an industrial unit can be of different type. They
include household, government, industrial, commercial enterprises etc. The
number of different types of customers highly influence a firm. For
example a firm supplies goods only to the government it means that firm
has only one customers.
 Suppliers:- Like the customers, supplier also influence the business. If a
business has only one supplier and he gets annoyed because of some
reason, the supply of goods can be stopped and the very existence of the
business can be threatened.

8.  Competitors:- The competing firm can influence the business firm in a
number of ways. They can do so by bringing new and cheap products in the
market, by launching some sales promotion scheme or other similar
methods.
 Public :- It has different constituents like the local public, press or media
etc. The attitude or behavior of these constituents can affects business unit.
 Marketing Techniques:- The marketing techniques play a significant role
in developing any business unit. They are those persons who reduce the
distance between the producers and agents.

9. (2) Macro Environment
 It refers to those external factors which has distant relation with business
and influence all business unit almost in the same way.
 Dimensions of Business Environment

10. Economic Environment
 It refers to the combination of economic system, economic policies and
economic condition.
 All the three component of economic environment influence business to a
large extent.
 They may create threats or offers opportunities to the business.
 Major element of Economic environment.
 Economic system such as socialist economy, capitalistic economy, and
mixed economy.
 Economic policies such as export-import policy, taxation policy,etc.
 Economic condition such as National income General price level, rate of
interest.

11. Social environment
 It refers to the combination of all the characteristic of the society in which
the organisation exist.
 It consist of social forces like traditions, values, social trends, fashions,
wishes, hopes, level of education, standard of living etc. these social forces
have impact on business.
 Major element of social environment
 Traditions:- It refers to social practices that have lasted for decades such as
Diwali, Eid, Christmas etc.
 Values:- It refers to the moral principles prevailing in the society, such as,
freedom, Social Justice, equality etc.
 Social trends:- It refers to a general change or development in the society
such as health and fitness among urban areas.

12. Technological Environment:-
 It consist of innovation of new techniques to produce goods and services
and operating the business.
 Technological changes bring something new and better for customers.
 They may create threat for some business and offer opportunities to others.
 The businessman must have close eyes on technological changes taking
place in his field.
 Major element of Technological environment:
 (a) Discovering new ways of producing goods and services.
 (b) Discovering new method of operating a business.
 For example:- The shift from print books to e-books; booking of online
train tickets instead of going to railway station to book tickets, automatic
cars are replacing cars with gear, manufacturing fabric from used plastic
bottles etc.

13. POLITICAL ENVIRONMENT
 It refers to the political conditions in the country and attitudes of the
government towards business.
 It has a great impact on the business community.
 It may have be either positive and negative impact upon business.
 Major element of political environment are:-
 General stabilty of government.
 Peace in the country.
 Types of government, single party government or multi party government.
 Ideologies of various political parties.
 Attitude of elected government towards business.

14. LEGAL ENVIRONMENT
 It refers to the sum total of all the Acts passed by the government ,
judgment of the courts, and decisions by various commissions and agencies
in the country.
 Every business enterprise has to meet all the legal compliances and follow
all the rules and regulations framed by the government.
 The business community cannot ignore the legal framework as it has to
perform transaction within it.
 It may be either positive or negative impact on business.
 For example:- All packs of cigarettes must carry a warning of ‘Smoking is
injurious to health’ or all the baby food products must inform that ‘mother
milk is the best’

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