Business Environment

Nature of Business Environment Meaning, Definition, Scope, Features

Table of Contents:-

  1. Nature of business environment 
  2. Business Environment Meaning
  3. What is Business Environment?
  4. Business Environment Meaning 
  5. Define Business Environment
  6. scope of business environment
  7. Features of business environment
  8. Components of Business Environment

Nature of business environment 

The nature of business environment includes the following points:

  1. Dynamic
  2. Internal and External Factors
  3. Multifaceted
  4. Unpredictable
  5. Interlinked
  6. Opportunities and Obstacles
  7. Uncertain
  8. Complex
  9. Defines Business’s Boundaries
  10. Long-Lasting Impact

The nature of business environment is explained as follows:

1) Dynamic

It is difficult for a business environment to remain the same for a long period. Thus, the environment is considered dynamic. The environmental factors change according to the tastes and preferences of the customer, amendments made in the government policies, up-gradation in technology, etc. All these factors affect the business in their decision making process. Hence, the ability to adapt the changes and implement them into action leads to the success and growth of the business.

2) Internal and External Factors

There are several internal and external factors which influence the business environment. The factors such as business objectives, policies, staff members, etc., combine to form the internal environment. Whereas, the external environment comprises micro and macro factors. The micro factors involve competitors, consumers, society, suppliers, etc. Macro factors include economic and legal, political, technological, cultural, and other external factors.

3) Multifaceted

Changes in the environment can have both positive and negative outcomes. Different people perceive differently upon the changes differently. For example, changes can be an opportunity for some people and it may be a threat to others.

4) Unpredictable

The business environment keeps on changing continuously. Businesses can influence the internal environment, not the external environment. Therefore, it may be considered that the internal environment is controllable and the external environment is uncontrollable.

5) Interlinked

The ‘environment’ is the most important element of any business. No business can function without its environment – legal, social, cultural, economic and political environment. Business and the environment have a mutual relationship. Therefore, the success and failure of business is influenced by the changes in the environment. The enterprise comprises an interactive process which collects inputs like raw materials, capital, manpower, energy, etc, from the environment converts them into finished goods and returns them to the environment.

6) Opportunities and Obstacles

The business environment is adaptable. Therefore, the business may act as an opportunity or an obstacle to the organisation depending on the situation. Opportunity provides scope for expansion whereas obstacle curbs the growth of the organisation.

7) Uncertain

In the dynamic world of business, frequent changes in the environment are always possible. These changes are highly uncertain. Thus, it becomes difficult for the business to forecast its future events. The business must constantly monitor environmental changes to improve both its current and future performance.

8) Complex

There are several difficult situations in the business environment which the enterprise must be aware of and must make the best use of. In comparison with the traditional form. The modern business is more complex and unstable. The scope and size of modern business are as wide as its environment. The changes like increasing government interference and social awareness unfavourably affect the business enterprise.

9) Defines Business’s Boundaries

The business organisation functions within an environmental framework. This can be in the form of social, political, economic, and legal structures, within which all business activities are carried out. To ensure a business organization’s growth and survival, it’s important to carefully analyze and efficiently adapt to changing structures.

10) Long-Lasting Impact

Businesses can be affected by the environment either positively or negatively. This can have a long-lasting impact on the conduct of business activities. Therefore, business analysis and diagnosis of the strengths and opportunities and formulate strategies and policies to avoid risks and threats to the environment.

Business Environment Meaning

The business environment means all those external factors which affect the functioning of the business. It is a combination of social, economic, legal, and technical factors. The business environment includes all those external and internal factors that create opportunities and also those that threaten the business.

The entrepreneur rarely has control over the external environment of the business, but the external environment can exert many controls on the entrepreneurship. It can greatly influence the scope and direction of business activities. Therefore, the basic function of an entrepreneur is to identify the environment in which he has to operate. 

 Related Article:- Reasons for International Business

Entrepreneurs need to adapt their policies according to the environment. Every business organization has to face its internal and external environment opportunities and threats. The internal environment reflects the strengths and weaknesses of the business, while the external environment represents challenges and opportunities of organisational behaviour

A single business cannot influence the environment through its unique activities. However, different companies can influence the environment through their collective conduct. The analysis of the company environment assumes that it is external to the organisation. The organisation tries to adjust its internal environment in light of the external environment. 

External factors and internal factors can affect each other and work together to influence a business.

What is business environment?

It refers to all those external forces or factors such as economic, political, social,  and natural forces that affect the functioning of a business and its operation. All these powers are beyond the control of the business, which means the business has no control over all of these but they affect the business. Hence, enterprises operate within an environment comprising diverse components beyond our control; our scope lies in studying and adapting to them at best.

The company environment is the sum of various social, economic, political environment, and legal conditions under which the business has to function.

Business Environment Meaning 

The term business environment comprises two different words (Business) + (Environment). People engage in various activities to earn money, which collectively falls under the realm of business. These activities aim to address the diverse needs of society.

Environment means the conditions around us, where we live, work, etc. When discussing the environment for business, we refer to all the elements surrounding the business. Combining these elements results in what we term business activity.

Like human beings have their environment in the form of weather. Whether it is winter or summer season, we wear clothes accordingly; if we want to survive, then we have to understand our environment, and in the same way, we adjust ourselves. Similarly, the business also has its environment surrounding it. It includes – different policies of the government, customers’ wants, knowing about the suppliers, etc.

Define Business Environment

According to William Gluck and Jock, “Business environment is the total of all those outside business firms and industries that affect their organization and operation.”

As per Arthur M. Weimer – “Business environment includes the climate or set of conditions such as, economical, social, political or institutional, in which business activities and operations take place.”

According to Davis, “The business environment is the total of all the circumstances, events, and factors that affect the business.”

As per Renki and Shawl – “Business environment includes the total of all those external factors to which the business exposes itself and is directly or indirectly affected”

According to Urwick and Hunt – “The environment includes external factors that create opportunities and threats to the business; This includes socio-economic status, technology, and political conditions. “

From the above definitions, we can deduce the business context which includes internal and external factors that pose threats to a business or provide opportunities for exploitation.

Introduction to Business

In business, all the activities are organized and conducted by the people to satisfy the needs of the consumers. So, it is an activity done by the people for the people which means that the people occupy a central place around which all the activities revolve. This means that business is a dynamic entity that believes in change and it may be right to say that today’s only certainty is change.

It is a great challenge for today’s and especially tomorrow’s traders and managers to stay abreast of the specific changes, to keep themselves up-to-date with the latest developments in the business field to maintain their existence and stability in the market. Therefore, the study of the business is of utmost importance to managers and practitioners.

Two more factors are not included in the definition and have a considerable impact on the business. They are the physical or natural environment and the global environment. 

Challenges of Working World

Businesses are challenged today to develop creative ways to make profits without harming the existing environment. Considering the diversity of these sources of change in the environment, global managers are challenged to restrain themselves and adjust as needed. 

A few companies in India like Daewoo, Hyundai, Maruti, Tata, and Hero-Honda are going ahead with their pollution-reducing programs.

Related Article:- Importance of business environment

Indeed, cleaning up the environment promises to create whole new classes of jobs in the future. Gone are the days when trade was heavily protected and subsidies, licenses, quotas, and restrictions were the order of the day. Now the competition is in the name of modern business.

Traders always stand on the verge of being wiped out of the market. They stand on their own feet to cut costs and eliminate deficiencies and continual quality improvement is the order of the day. However by competition, the consumer benefits from the various openings of various competitors.

It is about changing, what a competitor is going to bring in the future, it is all part of the interaction environment. If we understand all these in advance, we can increase our business by taking some steps.

Environment for Business

We can say that business_environment means understanding everything around us entirely and keeping information about it, like –

  1. What do customers want? 
  2. Who are our competitors? 
  3. What are the policies of the government? 

All these things which directly or indirectly impact a business, come in the business environment.

The trading environment has to pay attention to the environment around it in which it exists, a business can achieve success only when it pays full attention to the prevailing situation, and environment and makes adjustments in its work accordingly. 

The business environment is very complex and detailed, it is affected by various factors. The trading environment is constantly changing because many factors affect it. It is affected by economic, geographical, political, social, cultural, technical, legal, and international factors.

Related Article: International Business Nature and Scope

Scope of Business Environment

The scope of business environment includes the following points:

  1. Identifies Business Opportunities And Threats
  2. Helps In Planning And Policy Formulation
  3. Provides Useful Resources
  4. Improves Performance
  5. Helps In Coping With Rapid Changes
  6. Enhances Business Image
  7. Assist In Facing the Competition 

The scope of business environment is explained below:

1. Identifies Business Opportunities And Threats

The entrepreneurial environment helps businesses in the identification of different opportunities and threats. When businesses are capable of detecting market opportunities timely, then they can easily take advantage of such opportunities at the earliest. 

They can earn maximum returns and profits by availing of such opportunities before the competitors. Through proper interaction between an enterprise and its environment, all threats can be easily detected. It will enable businesses to take corrective measures timely.

2. Helps In Planning And Policy Formulation

A proper understanding of the trade environment helps in preparing better policies and strategies. It conveys all existing information regarding market conditions to businesses. All opportunities and threats of an organisation are scanned through the study of the company environment. 

Businessmen are appropriately aware of the environment and thereby take all decisions according to it. Their whole plan can be changed effectively and efficiently through environmental awareness.

3. Provides Useful Resources

Business depends on the environment in which it functions for several resources. The commercial environment supplies several inputs like capital, raw materials, and labour which are used by the business for its operations. 

These inputs are converted into goods and services to fulfil the needs of the market. Without a fair supply of inputs, a business cannot continue its operations. It is completely dependent upon the environment for taking inputs and delivering the required goods or services.

4. Improves Performance

The company environment has an effective role in accelerating the performance of the business world. Through constant environmental awareness, managers update their knowledge and skills. The environmental study acts as the medium of educating management

Environmental monitoring provides qualitative information which helps in developing strategic thinking. It enables managers to adopt appropriate management practices to control and improve the performance of the business.

5. Helps In Coping With Rapid Changes

Factors which constitute the trade environment are dynamic. They keep on changing regularly from time to time. These changes include changes in customers’ preferences, fashion, technology, economic conditions etc.

A proper understanding of the company environment helps businesses in detecting all these frequently occurring changes easily. It enables them to deal with these changes efficiently by taking proper actions at the right time. Managers through continuous monitoring of the environment are sensitive to such changes and respond effectively.

6. Enhances Business Image

Businesses through a proper understanding of their environment can improve their public image. They are more responsive and sensitive to environmental needs through proper knowledge of the corporate environment. The study of the environment provides them with information for making realistic plans and implementing them effectively. Businesses can provide better service and serve the interests of the entire society. People are happy with the business and develop confidence in it. This enables in development of a better image in the market.

7. Assist In Facing the Competition 

The commercial environment communicates all details about competitors in the market to the business. Awareness regarding the actions and strategies of competitors is important for every business to meet competition effectively. It helps businesses in formulating plans and policies on the competitor’s actions. Businesses can face challenges and competition in the market through systematic planning efficient way.

The Features of business environment

The features of a business environment include various factors that affect how a company works. Businesses need to know about these features so they can do well in the fast-changing world of business. These features include elements such as money, rules, new technology, and how the market behaves. They are like puzzle pieces that help a company figure out what they should do and how to be successful.

The following are the salient features of business environment:

  1. The totality of External Forces
  2. Specific and General Forces
  3. Interrelated
  4. Dynamic Nature
  5. Relativity
  6. Complexity
  7. Uncertainty

Features of business environment are explained below:

1. The totality of External Forces

The entrepreneurial environment encompasses all external factors and forces that are beyond the control of a business. It is a complex amalgamation of various elements that collectively shape its overall nature.

2. Specific and General Forces

The forces outside the business can be divided into two parts; specific and general.

i) Specific – These forces affect different parts of an industry in different ways. This includes things like customers, suppliers, other companies, and investors.

ii) General – These forces impact all companies in an industry, covering aspects like social, political, legal, and technical conditions.

3. Interrelated

The connection between factors inside a business and the outside world is clear. For example, when a new government changes import-export rules, it shows how politics and money are linked. Understanding this link is essential for businesses to thrive in a changing world. This way, they can make smart choices, adjust their plans, and, in the end, grow steadily.

4. Dynamic Nature

The business environment is made up of many factors, and a good number of them keep changing all the time. This means that the business environment is always evolving.

5. Relativity

The business environment differs from one country to another because it’s closely linked to local conditions.

6. Complexity

Many factors are closely connected in the environment, making it hard to see how each one affects businesses on its own. This complexity can make it tough for businesses to manage these factors effectively.

7. Uncertainty

Uncertainty is a key feature of the business environment, and it’s one of the toughest challenges. The business environment is always changing, so there’s no way to be completely sure about what will happen. Professionals who create business plans have to think about the changes that are already in motion, but it’s a risky task. Take technology, for example – it’s evolving so fast that we can’t predict exactly when or how big changes will occur. In this field, surprises can pop up at any time. The fashion industry isn’t an exception to this.

Approaches of business environment

The business environment is simpler and better explained by the following approaches:

  1. System Approach
  2. Social Responsibility Approach
  3. Creative approach

1. System Approach

Trade is a system by which it produces goods and services for the satisfaction of desired goods, using multiple inputs from the environment, such as raw materials, capital, labour, etc.

2. Social Responsibility Approach

In this approach, the business should fulfil its responsibility towards several categories of society like consumers, stockholders, employees, government, etc.

3. Creative approach

According to this view, business shapes the environment by facing challenges and taking advantage of opportunities in time; Business brings a change in society by paying attention to the needs of the people.

Components of Business Environment

The components of business environment include a wide array of elements that have a direct or indirect impact on a business’s operations, strategies, and overall success. By understanding and analyzing the components of business environment organizations can aim to make informed decisions, identify opportunities, and mitigate potential risks.

An understanding of the environment and changes related to it is very essential for business enterprises. Those business enterprises which scan their environment and are always prepared to adapt to changes may achieve success. Contrary to this, enterprises which fail to adjust to their environment are unable to survive in the long term. 

The components of business environment can be broadly classified into:

(i) Internal business environment, and

(ii) External business environment.

1. Internal Environment

An environment that has a direct influence on the business is termed an internal environment. The internal factors which influence the business environment are controllable i.e. they remain under the control of the business. Hence, factors like physical facilities, organisation and functional means can be revised and transformed as per the requirements of the environment. Through understanding the internal components of business environment the strengths and weaknesses of the business are revealed.

The strategy and decisions of internal organisation are determined by the following internal components of business environment: 

1) Value System

The selection of a business, its mission, vision, objectives, business policies and practices are all elements of the value system in an organisation. The founders and management team of a business play an important role in the decision making of the value system.

2) Mission and Vision and Objectives

Vision is a wider view to define the future prospects of the business. Vision aids in meeting the purposes of the business organisation. The mission is the short-term action through which objectives are attained.

3) Management Structure and Nature

Generally, business decisions are influenced by the organisational structure. This structure comprises the board of directors, managers, executives, etc. The number of fellows in an organisational structure determines the duration of decision making

4) Internal Power Relationships

Coordination between the levels of organisational structure is very important. The three levels, i.c., top, middle, and bottom levels, must have a mutual relationship among them. This helps the organisation to operate smoothly.

5) Human Resource

Human resource is a key part of any organisation. They define the strength and weaknesses of an organisation. The essential requirements of human resources include skills, quality, commitment, sincerity, the right attitude, etc. The level of employee participation and initiative differs from organisation to organisation and is determined by the corporate culture.

6) Company Image and Brand Equity

The internal environment of the company is affected by the image that it carries in the market. The image of the organisation helps in raising capital, mergers, other alliances etc. Likewise, brand equity also affects the organisation.

7) Miscellaneous Factors

Various other factors that determine the success or failure of a business are as follows: 

i) Physical Assets and Facilities

The availability of assets and facilities is essential for the smooth functioning of the business. The facilities influencing the competitiveness of the company include production, technology, labour, etc.

ii) Research and Development

The ability to innovate and compete is determined by the R&D department of an organisation. However, it is one of the external factors; it also influences the internal environment of the business.

iii) Marketing Resources

The marketing effectiveness of an organisation is directly influenced by resources such as the marketing department of the organisation, marketing personnel, distribution channel, and brand equity. 

iv) Financial Factors

Finance is the lifeblood of an organisation. Proper allocation of financial resources affects the business performance, business policies and strategies. Some important factors influencing the internal environment are financial policies, capital, etc.

2. External Environment 

The environment of any business is also affected by many external factors which cannot be controlled. The external components of business environment include economic, social, cultural, political, technological, and natural elements. These factors have a deep impact on the business and are beyond its control. It also reveals the business opportunities and challenges that are analyzed.

A business has to deal with the external environment as well as internal elements, external elements are also important for the business. The external components of business environment also include customers, competition, government policies, society, etc.

The following external components of business environment are as follows:

  1. Customer
  2. Competitor
  3. Government
  4. Society

There is also one more aspect of the business environment that is not under the control of the firm. Such a scenario is called the external environment. It is also divided into two subclasses:

(a) Micro-environment

It includes all factors within the immediate environment of the business enterprise that may affect its ability to serve customers. The following are the significant factors.

(i) Competitors

There are many firms, i.e. units of production in any business. There are many types of competition among such firms. According to the market structure, there may be many firms in an industry or only a few.

All the units of their product may be homogeneous or have product differentiation. The form of competition will be different in different situations. 

This competition can be generic or over a brand. In this way, businesses not under the control of any one firm have to face many types of competition.

(ii) Customers

The objective of the business enterprise is to earn profit. For this, he has to sell the products produced. Therefore, one of the main functions of an entrepreneur is to attract customers. Sales maximization may be one of the many objectives of oligopolistic firms. 

Business enterprises have many types of customers, such as individuals, wholesalers, retailers, investors, public institutions, foreign customers, etc.

The customer can be one, such as the government, or a few or many. An entrepreneur needs to focus on increasing the number of customers and try to ensure they remain associated with the enterprise stably.

(iii) Suppliers

The job of business entrepreneurs is to convert inputs into outputs. Therefore, they must continue to get all types of inputs regularly and at reasonable prices. The policy of vertical integration is adopted to avoid the careless, thoughtless behaviour of the supplier of the inputs.

(iv) Public

Public or public means the group that shows its interest in the success of the entrepreneur or whose actions have an effect on the functioning of the enterprise. Such groups may include the general public, customer organizations, local people, government, financial institutions, employees working in the enterprise, media persons, etc.

(v) Marketing Channels

Every firm needs intermediaries who help sell the goods it produces. Such intermediaries can be agents or traders. These people help the company to sell its products in the right market. For this, the help of advertising, radio, TV, and consulting firms can also be taken.

Some authors believe that the factors that determine the microclimate are those over which the entrepreneur can have more or less control. Therefore, they discuss these factors separately from the external method and divide the factors affecting the business strategy into individual and population rather than dividing them into internal and external.

(b) Macro-environment

In this scenario, those factors are discussed which are not under the control of anyone’s business. These factors are of two types:

  1. Economic factors, and 
  2. Non-Economic factors 

(1) Economic factors include the following:

  1. Population factors
  2. Economic factors 
  3. Technological and Non-Technological factors, and 
  4. International factors 

(2) The non-economic factors are as follows:

  1. Socio-cultural factors 
  2. Political and legal factors, and 
  3. Physical factors

A combined analysis of all these factors and components of business environment is given below.

(1) Demographic Environment

The effect of population on the firm is many. The greater the country’s population, the greater the market for the commodity in that country will be more spacious. But the size of the population is not everything. Along with size, the education level of the population, level of per capita income, distribution of income, male-female percentage, distribution of population based on age, etc., also have an effect. Apart from these, the population’s growth rate, employment level, number of unemployed, etc., also affect the demand for a firm.

The explosive population growth has put all the countries in trouble, as the amount of natural resources has started decreasing compared to the population. Due to this, the problems of food supply, mineral deposits, water supply, etc., are becoming dire, the cities are getting crowded, and the transport crisis has arisen. Due to all this, the quality of life is getting degraded. This problem has become more severe due to the rapid population growth and the low productivity level in developing countries.

(2) Physical Environment

The physical environment is the primary determinant of the economic development of a country. The physical environment includes the country’s natural resources, their distribution, the fertile power of the land, water, air, forests, mountains, minerals, infrastructure, etc. A closer look reveals that the developing countries are either in the tropics or an area with a cold climate. So, the question arises: is the physical landscape the primary determinant of economic development? The physical environment alone is only part of it for business growth. Along with the physical environment, the conditions of supply of capital, skilled labour, technology, managerial experience, etc., are no less important.

(3) Economic Environment

The business enterprise is primarily an economic organization. Therefore, its development ultimately depends on the economic environment. An unfavourable economic plan can be advantageous, while an adverse climate hinders enterprise growth. Key components of the economic scenario include agricultural policy, industrial policy, financial policy, trade policy, monetary policy, fiscal policy, economic structure, saving and investment policy, the economic role of government, efficiency of public industries, government control, state of competition, foreign capital and investment policy, etc. The economic landscape is vast and multi-dimensional, encompassing nearly all aspects of business.

(4) Social Environment

The social environment is the opposite of the private environment. Society is a human institution that is related to everyone living in it. The scope of the word social is so enormous that it includes family, caste, rural, modern intellectual, economic, political, religious, educational, cultural, and welfare. The social environment comprises tendencies, desires, aspirations, education and academic level, values, beliefs, customs, traditions, etc.

Business is a social institution, influenced by the social environment and, in turn, influencing it. Several factors contribute to the formation of the social environment:

  • Population size and composition.
  • Perceptions of family structure and function.
  • Attitudes towards work and labour.
  • Society’s view of managers: whether favourable and accepting or unfavourable and critical.
  • Societal attitudes: whether traditional and superstitious or scientific and rational.
  • Scientific thinking aids in business development.
  • Commitment to societal rights and obligations positively impacts business development.
  • Entrepreneurial willingness to take risks enhances business growth.

The social environment influences what type of goods will be produced and marketed, market strategy, organization, prices, and business ideals.

On the other hand, social systems and the environment are also influenced by business activities. Organization of business, business operation, innovation, dissemination of information, new ideas, etc., all affect the social environment. Many elements of a social environment in the short run are impossible. Therefore, the business must adjust according to the existing social environment. 

(5) Cultural Environment

The arts, literature, customs, food, lifestyle, etc., reflect a nation’s culture. The mental attitude of a person is also evident from the culture. Attitude towards women also reflects the cultural values ​​of society. The scope of the social environment is so vast that the cultural climate gets absorbed in it.

(6) Political and Legal Environment

There is a close relationship between business and political-cum-legal scenarios. The political environment and legal landscape are formed based on the society’s economic and social goals, ideologies, and values. In a welfare state, steps are taken to protect the interests of consumers, unemployed people, poor, retired employees, and older adults. 

These steps impact the structure and growth rate of business enterprises. Enterprises have to operate within the limits of the rules and acts passed by the government. If such laws and regulations are in the interest of the development of enterprises and encourage them, then they will have a favourable effect on the business. Arthur Lewis says that “the behaviour of the government plays an important role in encouraging and discouraging economic activities”. 

Government and its behaviour come under politics and law. That is why the government must act wisely. Lewis can be quoted once again as saying that “no nation has achieved economic development without the positive and constructive inspiration of a sensible government.”

Along with sensible government and creative inspiration, political stability is also necessary to grow uninterrupted business.

(7) Technological Environment

The use of advanced technology is also necessary to increase the pace of economic development and capital accumulation. Long-term growth depends only on technological progress, as it increases the productivity of labour, capital, and other resources. Kuznets has talked about five types of technological advancement, namely- 

  1. Scientific discovery, 
  2. Innovation, 
  3. Invention,
  4. Improvement, and
  5. Spread of innovation.

A business that cannot adapt itself to technological changes lags. Technological progress has been swift in the last four decades, especially in the information field; the companies that need help to keep pace with this progress will be left behind in the race.

(8) International Business Environment

Some businesses are not limited to the border of any one country but are spread over many countries, such as import-export, import of raw materials and machine parts, oil, etc. The international environment influences such industries. The global environment includes all the environments, such as the economic, political, social, cultural, physical, legal, etc. In the context of many countries, as a result of the revolution in transport and communication, the world has become very small; this earth has become a considerable village. 

In the current open economy era, the effect of the international environment is not only on domestic companies but also on multinational companies. The domestic company may also have to source raw materials from other countries and may have a large or small part of its total production to sell in the foreign market. Therefore, the economic and economic atmosphere of the countries it exports can impact this export. The price policy of oil-producing countries also affects the business activities of oil-importing countries. 

For Example:

In 1990, McKinsey studied the relative productivity of nine industries in Japan, Germany, and the USA. The study found that productivity in manufacturing industries in Japan was 17 per cent lower than in the US, and in Germany, it was 21 per cent lower than US productivity. The difference was different from the workers’ scale of production, technology, and skill.

The most crucial information in McKinsey’s study was the importance of globalization. This means competing with the top leaders of particular industries. The study revealed that

The productivity of Japanese workers in the automobile industry was higher than that of American workers. So, when Japan started investing directly in setting up automobile plants in the United States, there was a dramatic improvement in the productivity of these factories. There were two reasons for this improvement – the use of advanced technology and increased competition.

From this study, the international scenario can be sufficiently helpful in domestic business growth. This requires leaving the market open for trade, capital, and ideas from the most advanced countries and allowing for fierce competition with companies that adapt to the most advanced technology.

The international scenario is related to Commercial Policy, foreign policy, defence policy, foreign exchange policy, international treaties, international trade agreements, foreign economic recession, protection policy, etc. The global landscape is not static; it’s constantly changing. With this change, business enterprises also have to keep changing and adjusting.

The business environment is the sum of several components. Another feature is that it changes periodically.

The following are the major components of business environment:

(1) Economic Component

Economic Component refers to those economic events and activities that impact the business environment. In other words, these events and activities and their changes affect the operation and efficiency of the business. The significant economic components are demand and supply conditions, economic policies, saving and investment situations and changes occurring in them, import-export situations and trends, etc.

(2) Geographical Component

Geographical factors include natural resources, Such as land structure, minerals, environment, climate, mountains, forests, etc.

(3) Social and Cultural Component

Social traditions are under social components. These include Trends, customs, aspirations, level of education, and social values. These are some components that have an impact on the business environment. For example, the rapid economic development of Western countries is closely linked to promoting Protestantism.

The cultural values ​​of the society have an impact on the business environment of the country. Such values ​​also affect the workers’ willingness and ability to work, ultimately affecting the business environment. The field of culture is vast. It includes literature, art, human aspiration, lifestyle, beliefs, knowledge, traditions, customs, ideas, social preferences, etc.

(4) Political and Administrative Component

Political ideology and administrative systems affect the business environment. Hence, these are seen as a component. In a democratic system, the government works in the interest of public welfare. In this environment, people voluntarily participate in the works of economic development. 

On the contrary, in communist and dictatorial countries, people are forced, they are moved. In the condition of compulsion, there is no interest in working in democratic countries. When people know that the administration will work in their interest only, then such an administration starts getting the support of the people themselves. All these have a favourable effect on the business environment. Hence, it becomes an essential component.

(5) Legal Component

The Justice System, law related to the right to property, succession rules, labour law, labour union-related acts, etc., are the components of this class. If such factors affect the business environment, then surely this environment will be conducive to economic development.

(6) Scientific and Technological Component

A conducive environment for business gives prominence to the development of science and technology.

(7) International Environment

Today, the economy of any country is not closed, but it is open. There are trade, commercial, technical, etc., relationships between countries. If the international situation remains favourable, the business environment will be conducive to the domestic economic condition of the country. Therefore, the foreign environment has also become an essential factor, especially in the new era of globalization.

The various components of the environment that affect the business and the characteristics of these components can be summarized as follows: Environmental factors affect the company and their characteristics:

Environmental Factors Affecting Business are as follows:

  1. Economic environment, 
  2. Socio-cultural environment, 
  3. Political and legal environment, 
  4. Technological environment, 
  5. Geographic and ecological environment, 
  6. Population-related, 
  7. Global characteristics of environmental factors

FAQ

1. What do you understand by business environment?

The business environment is the sum or collection of all internal and external factors that impact a business and its operations. These factors include employees, customers’ needs and expectations, management, clients, supply and demand, owners, suppliers, activities by government, economic changes, social trends, innovation in technology, market trends, etc. 

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