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 Meaning of Business Environment —   It’s links an organization with outside world. Internal Factor: Employees, management & decisi...

 Meaning of Business Environment

  It’s links an organization with outside world.

Internal Factor: Employees, management & decision maker.

External Factor: range of factor such as – customer to competitor and  Government.

  Business has absolute control over all the internal factor.

  It has no control over the external environment.

  It becomes necessary for business houses to modify their internal decisions and policies, on the basis of the pressure from external factor.

  Business environment: refers to the influences and pressures exerted by external factors on the basis of business.


In Simple Words:

  Its is the combination of internal and external factors that influence a company  operating situation.

  All those conditions and forces external to a business unit under which it operates.

  Mutual interdependence between business and its environment.

  A business enterprise – open system

  Continuously interacts – with environment


Business And External Environment  Interacts In The Following Ways:

  Exchange of information

  Exchange of resoursrces

  Exchange of influences

 Emerging Trends

These Changes Are Referred To A Business Trends:

  •  Networking Marketing
  •  Franchising
  •  Business Process Outstanding
  •   Aggregator
  •   Knowledge Process Outsourcing
  •   Digital Economy
  •  E -  Commerce
  •  M -  Commerce

Various Factors Which Constitute The Business Environment:

1.      Demographic Environment

2.      Economic Environment

3.      Geographical And Ecological Environment

4.      Technological Environment

5.      Political Environment

6.      Educational Environment And Cultural Environment

7.      Social Environment

8.      Legal Environment


1.     Demographic environment:

It refers to the size and behavior of population in a country.


o   Huge Size Of Population:

Provide extensive business or marketing opportunities for all types of business organization.

o   Low Size Of Population:

Force the organization to seek external market for their products and services.


2.     Economic environment:

It refers to the overall economic factors like economic philosophy of the country, economic policies, controls and regulations etc.


o   Capitalist Economy:

Business organization subject to limited government regulations and controls.

o   Socialist Economy:

Government decide everything on behalf of the country.

In this economy private enterprises may not exist at all.


o   Mixed Economy:

Work on the basis of force of market demand and supply


The economics philosophy of the country directly determines the scope and functions of business organizations in that country.


3.     Geographical and Ecological Environment:

It refers to climatic conditions and natural resources, which determines the manufacturing scope and the nature of the products.


4.     Legal environment:

It is well known that every country has a number of legal  regulations to ensure that the interests of business organizations do not run to national interest.


o   Listing in stock exchange,

o   Payment of tax to the government,

o   Manufacturing practices,

o   Human resource development, etc.


5.     Technological Environment:

Very significant external factor


It determine the density of business organization


Modern organization have recognized that research and development alone can insure the

organizational growth and stability.


Business environment has become highly dynamic


o   Supported by:

                                                       I.            Computerized operation

                                                    II.            Minimizing the defects in products

                                                 III.            Ensuring the services at the right time and place




6.     Social Environment:

Social responsibility of business is an important force that modern business organization cannot wriggle out of their duties and responsibilities towards the society.


Similarly, the expectation of various interests in the society have undergone a sea change.

o   The shareholder, promoter and owner expect a reasonable return on their investments.

o   The workers expect security of service, terminal benefits, accident relief  etc from the organization.

o   Governments expects the business units to pay tax regularly and participate in-social movements


A business unit which succeeds in meeting the interests of all these groups remains successful and grows.


7.     Educational and cultural environment:

Educational environment in a country determines the quality of population.


A country with very high illiterate population would always experience political and economic instability.


The economic development of  a country completely depends on the literacy level which alone can pave the way of improvement in science and technology, modernization, industrialization, etc.


Cultural environment refers to the values, norms, custom, ethics, goals and other accepted behavioral patterns of people in a country.


8.     Political environment:

Political stability is one important factor which determines the business growth or downfall .


A country which relative political stability would witness inflow of foreign capital and collooration.


By  political stability – government – plan and policies remain – constant



1.     Knowledge Of Information:

Text Box: 1.	Knowledge of information
2.	Basis of decision
3.	Helpful in making policies 
4.	Technological planning 
5.	Survive in the businessEvery businessman should we aware of the current

environment of business.


2.     Basis Of Decision:

Business environment provide all the information which is needed for taking good decision.


Helpful for decision relating to purchase, sales, salary and price because you know the competitor.


3.     Helpful In Making Polices:

For making good business policies, we need to scan business through business environment.


4.     Technological Planning:

Today, technology is changing very fastly. So, you have to study technological environment. With this, you can make better technological planning for your business.


5.     Survive In The Business:

Sometime industry may face recession, production may be unlimited but sales will be limited.





Only these business enterprises will be able to survive which will estimates all these situations in advance through business environment study.





There is a close and continuous interaction between the business and its environment.


Business environments is multifaceted, complex and dynamic in nature.


1.     Determining Opportunities And Threats:

It helps the business enterprises for meeting the challenges successfully.


2.     Giving Direction To The Growth:

It enables the business to identify the areas for growth and expansion of their activities.


3.     Continuous Learning:

Environmental analysis makes the managers easier in dealing with the business challenges.


4.     Image Building:

Environmental understanding helps the business organization in improving their image by showing their sensitivity to the environment within which they are working.


5.     Meeting Competition:

It helps the firms ton analyze  the competitor strategies and formulate their own strategies accordingly.


6.     Indentify Firms Strength And Weakness:

Business environment help to indentify the individual strengths and weakness in view of the technological and global development.




There are following key component of general environment:

1.     Economic Environment


2.     Social Environment


3.     Political Environment


4.     Legal Environment


5.     Technological Environment



Main element or factors of business environment are:

1.     Micro Business Environment:

It is also known as internal business environment because business has power to control it.


                                 I.            Supplier


                              II.            Customer


                          III.            Market Intermediaries


                          IV.            Competitor


                              V.            Market Intermediaries


                          VI.            Competitor


                       VII.            Financial Intermediaries




2.     Macro Business Environment or External Factors of Business Environment:

                              I.            Economical Environment


a)     Economic Polices


b)    Economic Regulation


                           II.            Natural Environment


                       III.            Demographic Environment


                       IV.            Technological Environment

                           V.            Political Environment


a)     Executives

b)    Judiciary

c)     Legislature


                       VI.            International Environment



Confining business environment to uncontrollable external factors, it may be classified as:

1.     Economic environment



1.      Social

2.      Political

3.      Legal

4.      Technological

5.      Demographical

6.      Natural Environment



1.      Economic Condition

2.      Economic Policies

3.      Economic System


Non economic environment









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