Business environment refers to the combination of internal and external factors which affect directly and indirectly business. Internal factors include employees, customer’s need, demand and supply, and external factors refer to economic factors, social factors, technological and global factors.
These factors influence the business so it is necessary to scan the environment to do the major decisions for the business.
Environment scanning is the complete understanding of the business environment which includes SWOT, PEST analysis by this analysis businessmen can scan the external environment and look at the internal capabilities to grab the opportunities to grow.
Definitions of Business Environment by different authors:
“It encompasses the -climate’ or set of conditions, economic, social, political or institutional in which business operations are conducted.”
-Arthur M. Weimer
‘‘It is the aggregate of all conditions, events, and influences that surround and affect it.”
“The total of all things external to firms and industries that affect the function of the organization is called business environment.”
“Environment contains the external factors that create opportunities and threats to the business. This includes socio-economic conditions, technology, and political conditions.”
-William Gluck and Jauch
There are some important features which are as follows:
1. All external forces: It includes all external forces, institutions, factors that are external to the business enterprises which directly affect the business operations. These are Suppliers, investors, customers.
3. General forces: These forces are indirectly affecting business operations. Social, Political, Technological, and Legal conditions are indirectly affecting the business environment.
4. Dynamic: It means to keep changing. The external and internal environment is highly flexible that’s why it is essential to scan continuously to run the business smoothly.
5. Complex: This is very hard to know the impact of the external environment on organizations or business enterprises. Sometimes change is minor but its effect is large. For example, government policy changes the tax rate by 4% it may affect the income of the company by a large amount.
6. Uncertainty: Prediction of change in the environment is difficult for businessmen as we know that environment is changing very fast, for example, It Fashion industry, etc.
Components of Business Environment:
There are some important components related to the environment which are as follows:
1. Economic Environment:
The economic environment includes those factors and forces which are directly affecting the economy. It includes the GDP, Income level Profit earning rate employment productivity. economic factors consist of some aspects:
- GST bill, which affects the business organization.
- The banks are offering loans at a very low rate with minimum formalities.
- Rate of saving and investment.
- supply of money in the economy.
2. Social Environment:
Customs and traditions of the society having a great impact on the business. It includes the standard of living, taste, education level of the people where the business exists. It does not have an immediate impact on the business but the result shows in the long run. So business has to focus on the social aspects. like traditions, customs, habits of people, the attitude of customers, changes in the quality of life.
3. Political Environment:
This kind of environment has an immediate impact on the business so businessmen have to take decisions according to the political changes. Political affairs such as government power, an attitude of the government, policy changes implemented by the government have also a great impact on business transactions.
4. Legal Environment:
Every business concern has to obey the law and order made by the government so that no business unit can make unfair trade practices. Various Acts, legislative policies, company act, industrial act, consumer protection act, etc. are included in a legal environment.
5. Technological Environment:
Scientific improvement and innovations provide new ways of producing goods that help in the growth of the economy. There are some examples of the technological environment which are as under:
- Online sale of grocery items.
- Online booking of air tickets, movie tickets.
- Innovation of mobile phones simple to android.
- Shift from carbon paper to photocopier etc.
- The invention in techniques of production in It sectors, medicine, automobiles.
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