CONTENTS
1.1 Introduction
1.2 Factors of Business Environment
1.3 Environment of Business
1.3.1 Internal and External Environment of Business
1.3.2 Economic and Non-economic Environment of
Business and its Importance
1.1 Introduction
In common sense, the term business refers to buying and selling of
goods. But in modern times, business covers a wide and complex
field of industry and commerce involving complex activities related
to both production and distribution. All these activities satisfy the
diverse needs of the society and also help generate profit of
business firms or units. Thus by the term business we mean
organized efforts of different enterprise for supplying various
goods and services to the ultimate consumers for a profit.
Business, in nutshell, includes diverse activities related to
production, marketing, transport, trade, finance, banking,
insurance, advertising and some other activities connected with
industry and commerce. One thing is common, i.e., all these
activities are conducted as well as motivated by profits. Moreover,
all these activities must be conducted within the existing legal
framework. Violations of which must be excluded from business
activity.
1.2 Factors of Business Environment
Total environment of business is consisting of six factors which are as
follows:
Economic Environment: Economic development includes all those forces
which have an economic impact on business. Accordingly, total
economic environment is consisting of agriculture, industrial production,
infrastructure, planning, basic economic philosophy, stages of economic
development, trade cycles, national income, per capita income, savings,
money supply, price level and population. Business and economic
environment is closely related. Business usually collects all its required
inputs from the economic environment available and also absorbs the
output of business units.
Politico-legal Environment: It includes the activities of three political
institutions such as legislature, executive and judiciary which usually
play useful role in shaping, directing, developing and controlling
business activities. The legislature takes decisions on a particular course
of action, the executive implements those decisions through government
agencies and the judiciary serves as a watch-dog for ensuring public
interest in all the activities of legislature and executive. In order to attain
a meaningful business growth a stable and dynamic politico-legal
environment is very important.
Technological Environment: It is exercising considerable influence on
business. Technology implies systematic application of scientific or other
organized knowledge to practical tasks or activities. Business makes it
possible for the technology to reach the people in proper format. As the
technology is changing fast thus businessmen should keep a close look on
those technological changes for its adaption in their business activities.
Global or International Environment: Global environment is playing an
important role in shaping the business activity. With the liberalization and
globalization of the economy, business environment of an economy has
become totally different when it has to bear all shocks and benefits arising
out of global environment.
Natural Environment: It also influences business in a diverse way. Business
of modern times is also dictated by nature. Natural calamities like floods,
droughts, earthquake etc affect the business activities in a worst manner.
Socio-cultural Environment: It is also influencing the business environment
indirectly. These includes people’s attitude to work and wealth, ethical
issues, role of family, marriage, religion and education and also social
responsiveness of business. Social and cultural environment also influences
the demand for variety of goods and the type of employees the industry
require. Moreover, the obligation of business to society also depends on
the cultural milieu in which the firm is operating.
1.3 Environment of Business
The term business environment indicates all external forces or
factors which have a direct ir indirect bearing on the activities
related to functioning of business. However, the term business
environment is also being used in a broad sense. Thereby, it
includes both internal and external environment of business. Again
external environment is also divided into micro environment and
macro environment. These aspects are analysed in the following
manner:
1.3.1 Internal and External Environment of Business
Internal Environment: Internal environment of business includes
physical assets, technological capabilities, human, financial and
marketing resources, management structure, relationship among
various constituents, goods, objectives and value system prevailing.
External Environment: External environment of business is
composed of various organizations, institutions and forces
operating outside the company, which exert influence individually
and collectively as well on this environment. External environment of
business is broadly is broadly classified into micro environment and
macro environment.
Micro Environment: It includes those players whose decisions and
actions have a direct impact on the company. Production and
selling of commodities are the two important aspects of modern
business. Accordingly, the micro environment of business can be
divided. Input suppliers and workers along with their union are
exercising influence on production and they are considered as
prominent performers in the micro environment. Moreover, sales
operations of the business firm are affected by its customers,
markets intermediaries and competitors. Micro environment has a
great relevance from the context of company’s business
operations. Different players in the micro environment normally
do not affect all the companies of a particular industry in a similar
way. However, sometimes micro environment of the various firms
of an industry remains almost same.
Macro Environment: Another constituent of business environment
in the macro environment which includes all those economic and
non-economic factors which exerts its influence on the business
activity in general. Considering the business point of view, the
role of macro environment may be both positive and negative.
1.3.2 Economic and Non-economic Environment of Business and its
Importance
Macro environment of business is broadly classified into economic and
non-economic environment of business. Modern business conditions are
largely influenced by both economic and non-economic business
environment. In order to initiate various economic activities for attaining
economic development of a country, both economic and non-economic
environment business environment and its various constituent elements
are analysed in the following manner:
Economic Environment of Business Environment and its Importance
Economic environment is playing an important role in mobilizing the
business enterprise towards its right direction. Some of the important
constituent elements of economic environment of business are as follows:
Economic System: By economic system we mean the legal and institutional
framework within which various economic activities are undertaken.
Various economic activities like production, consumption, exchange
distribution and economic growth are all guided by institutional
framework which includes laws, customs and social institutions of a
particular country. At present there are three types of economic system
prevalent in this world. These are- capitalism, socialism and mixed
economy.
Macro-economic scenario: Macro-economic scenario of a country determines
the prospects of business to a large extent. A healthy environment supported
by rapid growth, high rates of saving and investment, stable price level, fiscal
stability and favourable balance of payments, always opens a bright prospect
of business growth in a country.
Business Cycle and Stagflation: Economic environment of business is also
influenced by ups and downs or cyclical fluctuations in business activity.
Prosperity and recessions are the common phases through which the
capitalist economy passes through periods.
Financial System: The economic environment of business is also influenced
by the efficacy of the financial system. Banks and non-banking financial
institutions are an important source of fund for the corporate sector. The
level of development of the financial system is having a crucial importance in
business.
Economic Policies: The government of a country has to formulate different
economic policies. All these economic policies can be classified as industrial
policy, monetary policy, trade policy and fiscal policy. All these economic
policies of the government are playing a significant role in determining the
economic environment of business of a country.
Non-Economic Environment of Business and its Importance
Non-economic environment is as important as economic
environment for influencing for influencing the business
activity of the country. All non-economic issues related to
business are included in non-economic environment of a
country. The non-economic environment of business can be
classified broadly as
Politico-legal Environment: In modern times, politico-legal
environment is having a paramount importance in business.
The politico-legal environment includes three political
institutions such as legislature, executive and judiciary which
usually play useful role in shaping, directing, developing and
controlling business activities.
Demographic Environment: It is also an important constituent
of business environment. Accordingly,, demographic factors
like, rise and growth rate of population, age and sex
composition of population, rural urban distribution of
population, educational levels, religion, ethnicity, caste,
language etc are all relevant to business conditions.
Socio-Cultural Environment: These includes people’s attitude to
work and wealth, ethical issues, role of family, marriage, religion
and education and the social responsibilities of business. All the
business firms usually operate in a definite socio-cultural
environment and they have to formulate their business policies
considering this factor.
Technological Environment: It is an important element in business
environment. Technology implies systematic application of
scientific or other organized knowledge to practical tasks or
activities.
Natural Environment: Suitable natural environment is also an
important component of non-economic environment of business.
Thus the business environment in the country also needs a natural
support which includes suitable climate, balanced weather, suitable
natural environment i.e., free from flood and drought etc.
Moreover, the maintenance of eco-friendly atmosphere is also
quite important for the promotion of developmental activities in an
economy
REFERENCE:
DHAR P.K.
DHAR PARIJAT: BUSINESS ENVIRONMENT
KALYANI PUBLISHERS= NEW DELHI- 2012