Meaning of Business Environment
Business environment refers to the surrounding or factors which affect the operations of the business. It refers to the area where the business exists. It consists of several factors which affect 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 the 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 keep on changing continuously. It can be broadly classified into two different categories: Internal environment and external environment. Internal environment includes all those factors which are internal to the organisation and are under its control.
These factors provide strengths and weakness to the organisation. Internal environment consists of physical resources, plan and policies, corporate culture, vision and objectives, human resources and organisation culture. Whereas the external environment include all those factors which are external to the 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. Various characteristics of the business environment are discussed as given below:
Characteristics of Business Environment
Inseparable Part of Business
Business environment is an important integral part of every business. Business cannot operate without the support of its environment. They are fully dependent on its environment for various inputs like raw materials, labour and capital for producing its goods or services. Business regularly interacts with its environment for detecting various changes. Proper understanding of business environment helps business in framing better policies. Business cannot be separated from its environment and are required to continuously monitor it.
Totality of External Forces
Business environment comprises of several external forces. These forces are not under the control of business and have a great impact on its performance. Environment is a comprehensive mega force that contains all external factors. These factors include customers, competitors, government, investors, economic, social, cultural factors etc.
Includes Specific and General Forces
There are specific and general forces included in Business environment. Specific forces are those which affects specific firm of industry. These forces have a direct influence on the working of a particular firm. Specific forces are employees, customers, investors, competitors etc. General forces are those which affect the entire industry comprising of several firms.
These forces indirectly influence the firms included in an industry. Such forces are shared by all firms but not by any specific firm, unlike specific factors. Some of the general forces are economic, social, technological, legal and political forces.
Business environment is ever-changing concept that always keeps on changing. It changes from time to time and does remain constant for a longer period. Such changes bring both opportunities and threats for business. Business needs to timely monitor these changes and should take all corrective measures accordingly. These changes are in terms of change in customer taste or preferences, technological improvements and entry of various new competitors.
Business environment changes are multifaceted in nature. Any change in business environment brings many positive and negative reactions for different business. They bring various opportunities as well as threat at the same time. A particular change may bring favourable condition for one business and unfavourable condition for another business. Different businessmen’s view environmental changes from different perspectives.
Regulate Scope of Business
Business environment directly regulates the functioning and scope of business. It provides the basic framework within which business should operate and every business is required to follow these limits. Business environment defines economic, social, legal and political structure for operations of business. Business should comply with all these structures and should properly monitor any changes in such structures for its survival or growth. They should try to adopt and adjust these changes in their functioning.
Business environment is a relative concept as it varies according to local conditions of a particular place or region. Business environment differs from place to place, region to region and from country to country. Demand for women’s shalwar kameez is high in India as compared to U.S.A. In the same way, economic conditions of Canada are different from those in Pakistan.
Long lasting Impact
Business environment has long term effects on the performance of the business. Any changes in business environment bring both opportunities and threat for businesses that have long lasting effects. It affects the success, growth or even survival of business. Any favourable condition brought by such changes may bring more profit and support business growth. Whereas, unfavourable conditions brought by such factors may have worse effects on it and may become a threat for its continuation. Business should properly monitor these changes for taking all corrective measures required.