Concept: Business Environment
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, and technical
factors etc., which are uncontrollable in nature and affects the business
decisions of a firm.
Following are the features of
Business environment:
a) Totality of external forces: Business
environment is the sum total of all things external to business firms and, as
such, is aggregative in nature.
b) Specific and general forces: Business
environment includes both specific and general forces. Specific forces (such as
investors, customers, competitors and suppliers) affect individual enterprises
directly and immediately in their day-to-day working. General forces (such as
social, political, legal and technological conditions) have impact on all
business enterprises and thus may affect an individual firm only indirectly.
c) Dynamic nature: Business environment is
dynamic in that it keeps on changing whether in terms of technological
improvement, shifts in consumer preferences or entry of new competition in the
market.
d) Uncertainty: Business environment is
largely uncertain as it is very difficult to predict future happenings,
especially when environment changes are taking place too frequently as in the
case of information technology or fashion industries.
e)
Relativity: Business
environment is a relative concept since it differs from country to country and
even region to region. Political conditions in the USA, for instance, differ
from those in China or Pakistan. Similarly, demand for sarees may be fairly
high in India whereas it may be almost non-existent in France.
Importance of Business Environment
There
is a close and continuous interaction between the business and its environment.
This interaction helps in strengthening the business firm and using its
resources more effectively. As stated above, the business environment is
multifaceted, complex, and dynamic in nature and has a far-reaching impact on
the survival and growth of the business. To be more specific, proper
understanding of the social, political, legal and economic environment helps
the business in the following ways:
(a)
Determining Opportunities and Threats: The
interaction between the business and its environment would identify
opportunities for and threats to the business. It helps the business
enterprises for meeting the challenges successfully.
(b)
Giving Direction for Growth: The
interaction with the environment leads to opening up new frontiers of growth
for the business firms. It enables the business to identify the areas for
growth and expansion of their activities.
(c)
Continuous Learning: Environmental
analysis makes the task of managers easier in dealing with business challenges.
The managers are motivated to continuously update their knowledge,
understanding and skills to meet the predicted changes in realm of business.
(d)
Image Building: Environmental
understanding helps the business organisations in improving their image by
showing their sensitivity to the environment within which they are working. For
example, in view of the shortage of power, many companies have set up Captive
Power Plants (CPP) in their factories to meet their own requirement of power.
(e)
Meeting Competition: It helps
the firms to analyse the competitors’ strategies and formulate their own
strategies accordingly.
(f)
Identifying Firm’s Strength and
Weakness: Business environment helps to identify the individual
strengths and weaknesses in view of the technological and global developments.