Business Environment – Introduction

A business may be defined as any activity directed towards procuring or acquiring wealth. Business activities comprise of all economic activities related to production and exchange of goods and services for earning economic returns.

Characteristics of a Business

  • It involves production and sale of goods and services
  • It requires a certain investment
  • It aims at earning profits
  • It is subjected to risk and uncertainty factors operating in the environment

 

Business Environment – It refers to the aggregate of all the conditions, events and influences that surround and affect a business.

Business Environment consists of all the external and internal factors which have an impact on the functioning, performance and decision making of a business.

 

Types of Business Environment /Factors affecting Business Environment –

There are various sources operating in the business environment, those forces which are external to the business and beyond their control are known external factors which operate in the external environment of the business. Forces which are internal to a business and controllable in nature are known as internal factors which operate in the internal environment of the business.

 

External Factors/ Uncontrollable Factors –

The external factors affecting a business may be divided into two –

Macro Factors – Factors which operate in the external environment of the business and have an indirect impact on its performance.
Micro Factors – Factors which are present in the immediate environment of the business and have a direct impact on its performance.
Demographic Factors Public and Media
Political & Legal Factors Customer
Economic Factors Market Intermediaries
Technological Factors Investors and Shareholders
Socio-cultural Factors Competitors
Environmental or Natural Factors Employees

 

Internal Factors/Uncontrollable factors –

The internal environment of a business categorised in terms of 6 M`s i.e.

Man, Money, Machinery, Management, Marketing and Miscellaneous Factors.

They Include –

  • Vision and Mission of the company
  • Dynamic nature of Top Management
  • Research and Development
  • Organizational Structure
  • Organizational Culture and Value system
  • Company Image
  • Competitive advantage
  • Capital Assets and Financial Position of the company
  • Human and Industrial Relation

 

Importance of Business Environment –

  • First Movers Advantage – Knowledge of the business environment enables a business to exploit opportunities present in the industry and helps a business to gain a first movers advantage and capture virgin markets.  
  • Identification of Threats – It helps a business to identify threats present in the industry and it to overcome drastic cyclic and seasonal fluctuations in the business environment.   
  • Coping up with changes – Constant analysis of the business environment helps a business to be pro-active and cope up with the dynamic business environment.
  • Improve Performance – Analysis of the business environment helps a business to identify key performance indicators that affect a business and aids in controlling devations in performance. 
  • Facing Competition – It helps a business to face competition by analysing the market share, market growth, market demand of the industry and strategic actions of the competitors. 
  • Build company Image – It helps a business to create a good image in the minds of the public and consumers through constant evaluation, feedback and control of its products, brand, strategy etc.  

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