Business Environment refers to a set of forces and conditions inside and outside the organization’s boundaries that have the probability to affect the way the organization runs.
Understanding the environment within which the business has to operate is very important for running a business unit successfully at any place.
Because, the environmental factors influence almost every aspect of the business, be it its nature, its location, the prices of products, the distribution system, or the personnel policies.
Hence it is important to learn about the various components of the business environment, which consists of the economic aspect, the socio-cultural aspects, the political framework, the legal aspects, and the technological aspects, etc.
In this post, we will learn about the concept of the business environment, its nature and significance and the various components of the environment.
Also, we will acquaint ourselves with the concept of social responsibility of business and business ethics.
Features of Business Environment
Based on the above discussion, the features of the business environment can be summarized as follows.
- The business environment is the total of all factors external to the business firm and that greatly influences their functioning.
- It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.
- The business environment is dynamic which means, it keeps on changing.
- The changes in the business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in the economic and social environment.
- Business Environment differs from place to place, region to region and country to country. Political conditions in the USA differ from those in the UK, Taste, and values cherished by people in Bangladesh, India, Brazil and the USA vary considerably.
Importance of Business Environment
As stated earlier, the success of every business depends on adapting itself to the environment within which it functions.
For example, when there is a change in government policies, the business has to make the necessary changes to adapt it to the new policies.
Similarly, a change in the technology may render the existing products obsolete, as we have seen that the introduction of computers has replaced the typewriters; the color television has made the black and white television out of fashion.
Again a change in the fashion or customers’ taste may shift the demand in the market for a particular product, e.g., the demand for jeans reduced the sale of other traditional wear.
All these aspects are external factors that are beyond the control of the business.
So the business units must have to adapt themselves to these changes to survive and succeed in business.
Hence, it is very necessary to have a clear understanding of the concept and the nature of its various components.
To be more specific, a proper understanding of the social, political, legal and economic environment helps the business in the following ways:
Determining Opportunities and Threats
The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.
Giving Direction for Growth
The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.
The environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding, and skills to meet the predicted changes in the realm of business.
Environmental understanding helps the business organizations in improving their image by showing their sensitivity to the environment within which they are working.
For example, given the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their requirement of power.
It helps the firms to analyze the competitors’ strategies and formulate their strategies accordingly.
Identifying Firm’s Strength and Weakness
The business environment helps to identify the individual strengths and weaknesses because of technological and global developments.