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 that affect the functioning, growth, profitability, and even continuation of the business. Factors that establish a 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.
The 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.
Features of Business Environment
Influence Business Planning and Performance
The business environment directly influences the planning and performance of business organizations. Business planning and the environment go together. All plans and policies of business are framed in accordance with situations of environment.
The environment provides the basic framework within which business is required to operate. It influences the performance by providing various opportunities or obstructions. Business is able to operate efficiently with the support of their environment in which they exist.
Business for its continuity and growth is required to adapt to environmental changes. In order to survive, business needs to works in accordance with its environment. Every change in the business environment brings several opportunities and threats to it.
It affects their performance and profitability. The business needs to continuously 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.
Several factors that make up the business environment are interrelated with each other. Change in any one of the factors of the business environment will bring changes in several other factors. With the rise in the price of raw materials, the final price of products will also go up due to which customers will either stop buying or will buy less of products thereby reducing the overall revenue of the business. In this way, all factors are connected to each other.
The business environment is uncertain in nature and cannot be predicted. Factors that constitute business environment changes very rapidly and no one can determine them in advance. Prediction of several future conditions that affect business is quite difficult because no one knows what is going to happen in the future. These changes occur too frequently like change in IT, fashion, demand, technology, economic conditions etc.
Brings Strengths and Weakness
Environmental changes bring certain strengths and weaknesses to business. They may pose unfavorable situations or threats to business and may even bring opportunities for business. The business should keep an eye on all environmental changes to detect all opportunities as early as possible for taking maximum benefits out of it. Also in case of any unfavorable situations businesses can make effective plans timely to minimize the losses.
Relative in Nature
The business environment differs from business to business or from country to country. The environment of business have relativity to place where it operates. It changes in accordance with local conditions of the area in which business exists.
The business environment varies from place to place, region to region, and country to country. The technology used in different countries differs from each other and accordingly business need to frame their policies. The nature of products demanded will vary from country to country like shalwar kameez will be in more demand in India than in the U.S.A.
The environment around the business is dynamic in nature. It keeps on changing regularly. The business environment does not remain the same for a longer period of time and changes frequently. It is due to several factors that constitute the environment and their ever-changing nature. All these always changing factors bring changes in character and shape of the business environment making it dynamic.
Mutual Interdependence between Business and Environment
Business and its environment are interdependent on each other. Business depends on its environment for various inputs like raw materials, labor, machinery, capital, etc. In the same way, the environment is dependent on the business organization for various goods and services manufactured by it. Businesses manufacture goods and deliver them to the environment in return for inputs supplied by them.