Business Environment: Meaning and Components
-Compiled
by Dr. Lalit Kumar Setia*
What is
Business Environment?
Generally, Business
refers to those activities that are related to the buying and selling of
goods. Business Environment consists of all those factors that have a
bearing on the business. The survival and success of a business firm
depend on its strength, resources at its command, including physical resources,
financial resources, human resources, skill and organisation and its
adaptability to the environment and the extend to which environment is
favourable to the development of the organisation. The survival and success of
a fir, thus, depend on two sets of factors, viz., the internal factors the
internal environment and external factors- the external environment.
Factors
affecting Business Environment:
Some of the external
factors have a direct intimate impact on the firm (like the suppliers and
distributors) of the firm. These factors are classified as micro environment
also known as task environment and operating environment. These are other
external factors which effect an industry very generally (such as industrial
policy, demography factors etc.). They constitute what is called
macro-environment, general environment or remote environment.
Hence business
environment has three components.
- Internal
environment
- Micro
environment/task environment/operating environment
- Macro
environment/general environment/remote environment
Internal
Environment
The important internal
factors which have a bearing on an organisation include:
a) Value system:
The value system of the founders and those at the helm of affairs has
imported bearing on the choice of business, the mission and objective of the
organisation, business policies and practices.
b) Mission and objectives:
The business domain of the company, priorities, direction of
development, business philosophy, business policy etc. are guided by the
mission and objectives of the company e.g. Ranbaxy’s thrust in to the foreign
markets and development have been driven by its mission “to become a research
based international pharmaceutical company.”
c) Management Structure and Nature:
The organisation structures the composition of the Board
of Directors, experts of professionalization of management etc. are important
factors influencing business decisions. Some management structures and styles
delay decision while some others facilitate quick decisions making.
d) Internal Power Relationship:
Factors like the amount of support the top management
enjoys from different levels of employees, shareholders and board of directors
have important influence on the decisions and their implementation.
e) Human Resources:
The characteristics of the human resources like skill, quality,
morale, commitment, attitude etc. could contribute to the strength and weakness
of an organisation.
Company Image
and Brand Equity:
The image of the company
matters while raising finance, forming, joint venture or other alliances,
soliciting marketing intermediaries, entering purchase or sale contracts,
launching new products etc.
Micro Environment:
The micro environment
consists of the actors in the company’s immediate environment that affects the
performance of the company. These include the suppliers, marketing
intermediaries, competitors, customers’ etc.
Suppliers:
Supplier supply the
inputs like raw materials and components to the company. For the smooth
functioning of business, it is important to have a reliable source of supply of
raw material and components.
Marketing intermediaries:
Marketing intermediaries
are the firms that aid the company in promoting, selling and distributing its
goods to final buyers. Marketing intermediaries include middlemen such as
agents and merchants like: help the company find customers or close sales with
them “, physical distribution firms which assist the company in stocking and
moving goods from their origin to their destination such as advertising
agencies marketing research firms etc and financial intermediaries which
finance marketing activities and insure business risk.
Competitors:
The firm’s competitors
include not only the other firms which market the same or similar products but
also all those compete for the discretionary income of the consumers. An
implication of these different demands is that a marketer should strive to
create primary and selective demand for his products.
Customers:
The major task of a
business is to create and sustain customers. A business exists only because of
its customers monitoring the customer sensitivities, therefore, prerequisite
for the business success. A company may have different categories of customers
like individuals, households, industries and other commercial establishments,
and government and other institutions. With the growing globalization, the
customer environment is increasingly becoming global. Not only the markets of
other countries are becoming more open the Indian market is becoming more
exposed to the global competition and the Indian customer is becoming more
“global” in his shopping.
Macro
Environment:
The macro environment
consists of the societal forces that affect all the sectors in the company’s
macro environment namely, the demographic, economic, natural, technological,
political and cultural forces. These environment forces are beyond the control
of a firm, its success will depend to a very large extend on its adaptability
to the environment.
Socio-cultural Environment:
The buying and
consumption habits of the people, their language, beliefs and values, customs
and traditions, tastes and preferences, education etc are the constituents of
Socio-economic environment.
For a business to be
successful, its strategies should be the one that is appropriate in the
Socio-cultural environment. The marketing characteristics of the market e.g.
Nestle, a Swiss multinational company brews more than forty varieties of
instant coffees as per different national tastes.
Natural Environment:
Difference in
geographical conditions between markets may sometimes call for changes in the
marketing mix, geographical and ecological factors also influence the location
of certain industries, climate and weather conditions affect the location of
certain industries like the cotton textile industry. Topographical factors may
affect the demand pattern. For example, in hilly areas with a difficult
terrain, jeeps may be in greater demand than cars.
Demo-graphical
Environment:
Demographic factors like
the size, age composition, sex composition etc of the population, family size,
educational levels, language, religion etc are all factors which are relevant
to business.
The occupational and
spatial mobility of population have implications for business if labour is
easily mobile between different occupations and regions, its supply will be
relatively smooth and this will affect wage rate.
Technological
Environment:
Technological
developments may increase the demand for some existing products. For example,
voltage stabilizers help increase the sale of electrical appliances in market
characterized by frequent voltage fluctuations in power supply. However, the
introduction of TVs, refrigerators etc. with build-in-voltage stabilizers
adversely affects the demand for voltage stabilizers.
Political
Environment:
Political and government
has close relationship with the economic system and economics policy. Certain
changes in government policies such as the industrial policy, traffic policy,
fiscal policy etc. may have pro focused impact on business. In may countries
with a view to protecting consumer business. In many countries with a view to
protecting consumer interests, regulations have become stronger. Regulations to
protect the purity of the environment and preserve the ecological balance have
assumed great importance in many counties.
*Copyright © 2017 Dr. Lalit Kumar. All rights reserved.
You might be interested
to reading the following:
4. Questions on Commerce - Most Important 
