Meaning, Definition, Nature, Scope, Features of Business Environment

Table of Content:-

Meaning Of Business Environment

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 make 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 entrepreneur. 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. 

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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. But different companies can influence the environment through their collective conduct. The analysis of the business 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.

The business environment 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. Thus the business environment is made up of a combination of various components over which we have no control and at most, we can study them and adjust ourselves.

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

Business Environment Meaning 

In Business Environment, we should know about its meaning and what is meant by Business Environment. The term Business Environment comprises two different words Business (Business) + Environment (Environment). All the activities done by people to earn money come under business, business includes only those human activities which are done to fulfil the various needs of society. 

Environment means the conditions around us, where we live, work, etc. But if we talk about the environment of the business, then all the things around the business that it is surrounded by, if we mix them all in one, we call it a business environment.

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.

The Definition of Business Environment

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

According to 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 sum total of all the circumstances, events, and factors that affect the business.”

According to Renki and Shawl – “Business environment includes the sum 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 environment which includes internal and external factors that pose threats to a business or provide opportunities for exploitation.

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 abreast with the latest developments in the business field to maintain their existence and stability in the market. Therefore, the study of the business environment 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. 

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.

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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. But by competition, the consumer benefits from the various opening of various competitors.

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

In this way, we can say that Business Environment simply means understanding everything around us completely 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 business 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 business environment is constantly changing because many factors affect it. The business environment is affected by economic, geographical, political, social, cultural, technical, legal, and international factors.

Nature and Scope of business environment

 Nature of business environment 

Nature is simpler and better explained by the following approaches;

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.

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Scope of business environment

1. Identifies Business Opportunities And Threats

The business environment helps businesses in the identification of different opportunities and threats. When business is capable to detect market opportunities timely, then they can easily take advantage of such opportunity at the earliest. 

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

2. Helps In Planning And Policy Formulation

A proper understanding of the business 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 business 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 they function for several resources. The business 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 fulfilling 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 business environment has an effective role in accelerating the performance of business organisations. 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 business 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 business environment helps businesses in detecting all these frequently occurring changes easily. It enables them in dealing 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 business 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 interest 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 business 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 for meeting 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 following are the salient features of the business/business environment;

1. The totality of External Forces: The business environment is the sum of all the factors/forces that are available outside the business and over which the company has no control; It is a set of many such forces due to which its nature is of totality.

2. Specific and Normal Force: The forces outside the business can be divided into two parts; specific and general.

3. Specific: These forces affect the components of an industry differently, e.g., customers, suppliers, competing firms, investors, etc.

4. General: These forces affect all firms in an industry equally, e.g., social, political, legal, and technical conditions.

5. Interrelated: Various factors of the business and the environment are co-related; For example, suppose the import-export policy has changed with the coming of the new government.

  •  In this case, the new government coming to power and the change in import-export policy are political and economic changes respectively; thus, a change in one factor affects another.

6. Dynamic Nature: It is clear that the environment is a mixture of many factors and some other factors keep on changing. Therefore, it is said that the business environment is dynamic.

7. Relativity: The business environment is related to local conditions and that is why the business environment is different in different countries and different countries.

8. Complexity: Many factors are involved in the environment; All these factors are related to each other; Therefore, their impact on the business cannot be recognized; Perhaps this is the reason why it becomes difficult for businesses to cope with them.

9. Uncertainty: Nothing can be said with any amount of certainty about the factors of the business environment as they change quickly. Professionals setting business strategies take into account possible changes already taking place.

  • But it is risky to work. For example, technological changes occur very rapidly; No one can foresee the likelihood of these rapid technological changes. Anytime, anything can happen. The same is with the case of fashion.
Business environment

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