Business Environment

What comes to your mind when you hear the term ‘business environment‘? Well, the term itself is self-explanatory. It consists of two words: BUSINESS and ENVIRONMENT. All the forces, factors, individuals, and institutions that are not controlled by the business enterprise but may affect its performance come under the business environment. These may include the employees, the manager and other people in the company, or maybe other shareholders, other organisations affecting the company directly or indirectly, etc. Basically, the business environment consists of everything surrounding the business that affects it in some manner or the other.

Features/Characteristics of Business Environment:

1. The totality of external forces: This feature states that the business environment includes everything external to business firms and, thus, is accumulative. 

1. Specific and general forces: Both specific and general forces are a part of the business environment.

• Specific forces are those which have an immediate impact either directly or indirectly on individual enterprises. These may include the investors, customers, competitors, and suppliers.

• General forces affect business enterprises indirectly. These forces include social, political, legal, and technological factors.  

1. Inter-relatedness: There are many aspects or parts of the business environment, all of which are interrelated. For example, people nowadays have started adopting healthier lifestyles, leading to an increase in their life expectancy. This, in turn, has boosted the demand for health-related products and services. 

1. Dynamic Nature: A feature of the business environment is that it is dynamic, which means that the aspects revolving around this concept keep on changing with time. This change can be in terms of technology, shifts in consumer preferences, or maybe the entry of new competitors in the market.

1. Uncertainty: We live in an ever-changing world, and it’s very difficult to predict future happenings. The same goes for businesses. Many sectors, such as the fashion industry, see new changes and trends every day.

1. Complexity: Now, we know that the business environment is a collection of numerous interrelated factors, which arise from different sources. So, it’s challenging to predict what constitutes a given environment. In other words, we can say that the business environment is not as easy as it appears to be. It has various layers which need to be understood one at a time for the successful working of a business. 

1. Relativity: The concept of a business environment is relative in nature. It differs from country to country or region to region. Some products that may have a very high demand in one country may not be working well in others. This is due to the cultural differences between the two countries.

Components of Business Environment:

There are two components of the business environment: Internal and External.

1. Internal Environment:

The internal environment usually consists of the factors that are under the control of any business. These factors influence the business in some way or the other; so, their knowledge is essential. These factors are:

• Objectives of Business
• Production Capacity
• Management Information System
• Composition of Board of Directors
• Organisational Structure
• Policies of Business
• Production Methods
• Participation in Management
• Managerial Attitude
• Features of Human Resources, etc

2. External Environment:

The factors that fall under this category of business environment influence the business, but these are not under the direct control of the company. So, they are named external factors, i.e., they lie outside of any business. Some of these factors have a very close relationship with any company. However, there are some other factors that do not have a deep impact on the company, but they influence the entire community as a whole. On this very basis, the external environment is further divided into two sub-categories: Micro or Operating Environment and Macro or General Environment.

• Micro or Operating Environment includes the factors closely related to any business. They influence every industrial unit individually. These include customers, suppliers, competitors, the public, market intermediaries, etc.

• Macro or General Environment includes the factors which are not so closely related to any business. They influence all the business units in almost the same way. Demographic, economic, legal, political, cultural, technological, global, and other similar factors fall under this category.

Scope of Business Environment:

A sound understanding of the business environment:

1. Helps in identifying business opportunities and threats
2. Assists in the formation and execution of various business policies
3. Provides useful resources
4. Helps in enhancing the overall performance of any business
5. Helps in coping with rapid changes
6. Enhances business image 
7. Assists in facing competition

Conclusion

The business environment is the most critical aspect for the successful working of any business. So, it’s vital for all the companies/organisations to gain in-depth knowledge of their environment before taking any crucial decisions. This will save them from facing future threats and provide great opportunities for their businesses to flourish.