Nature of Business Environment

Meaning of Business Environment

Business environment refers to the surrounding or factors which affects the operations of business. It refers to the area where business exists. It consists of several factors which affects the functioning, growth, profitability and even continuation of business.  Factors which constitute business environment are customers, suppliers, competitors, investors, technology, economic conditions, government etc. These all factors affect success or failure of any business and bring several opportunities, threats and challenges to it.

Business environment is a dynamic concept as it comprises of several factors which keeps on changing continuously. It can be broadly classified in two different categories: Internal environment and External environment. Internal environment include all those factors which are internal to organisation and are under its control. These factors provide strengths and weakness to organisation. Internal environment consists of physical resources, plan and policies, corporate culture, vision and objectives, human resources and organisation culture.

Whereas external environment include all those factors which are external to organisation and are not under its control. External environment brings opportunities or threats to business. It includes factors like customers, supplier, competitors, society, technology, economic, political and cultural environment. Proper understanding of business environment helps in framing better strategies as per business opportunities and enhances the overall performance. Nature of Business environment can be well understood from points below:

Nature of Business Environment

Nature of Business Environment
Nature of Business Environment


Business environment is complex in nature. It consists of several factors, conditions and events which directly influence the functioning of business. These factors influence the productivity and profitability of business. It is quite difficult to understand how a particular factor affects the operations of business. Different factors affect differently the performance of business. 


Business environment is a dynamic concept and keeps on changing continuously. Various factors which constitute business environment are always changing from time to time. These changes are in terms of changes in customer preferences, technological improvements, new competitor’s entry etc. These ever changing factors bring changes in character and shape of business environment making it dynamic.


Factors of business environment are dependent on each other. Business environment include economic, social, legal, technological and political factors. Changes in any one of the factors will bring changes in several other factors. Like countries having better economy are able to enhance their technology by incurring sufficient expenditure on research and development.


Factors which constitute business environment are uncertain. It is quite difficult to predict several future conditions because no one knows what is going to happen in nature. These factors changes too frequently like changes in fashion, technology, demand and economic conditions.


Business environment is relative in nature which means that it changes from one place to another and from one country to another. Economic conditions In Canada are different from those in India. Similarly, demand for women’s shalwar kameez is high in India than in U.S.A.  

System Approach

Business environment is a systematic approach which facilitates business in its functioning. Business is a system which manufactures the products and services. It satisfies the wants of customers by taking several inputs like raw materials, capital, labour etc. from environment and delivering the required goods and services.

Social Responsibility Approach

Social responsibility is another important characteristic of business environment. According to this, business exists for serving various members of society. These include shareholders, employees, customers, government etc. and every business should consider their interest while operating.