Nature & Scope of Business Environment


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 constitute 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. Internal environment includes all those factors which are internal to organisation and are under its control. These factors provide strengths and weaknesses to the organization. Internal environment consists of physical resources, plan and policies, corporate culture, vision and objectives, human resources, and organization culture. Whereas the external environment includes all those factors which are external to the organization and are not under its control. The external environment brings opportunities or threats to the business. It includes factors like customers, suppliers, competitors, society, technology, economic, political, and cultural environment.

Proper understanding of the business environment helps in framing better strategies as per business opportunities and enhances the overall performance. Scope of Business Environment is explained in points given below:

Scope of Business Environment

Scope of Business Environment
Scope of Business Environment

Identifies Business Opportunities and Threats

Business environment helps business in identification of various opportunities and threats. When business is able to detect market opportunities timely, they can easily take advantages of such opportunity at earliest. They can earn maximum returns by availing such opportunity before the competitors. By proper interaction between business and its environment all threats can be easily detected. It will enable business in taking corrective measures timely.

Helps in Planning and Policy Formulation

Proper understanding of business environment helps in formulating better policies and strategies. It conveys all current information regarding market conditions to business. All opportunities and threats are scanned through the study of the business environment. Businessmen are properly aware of environment and thereby take all decisions according to it. Their entire plan can be changed effectively and efficiently through environmental awareness.

Provides Useful Resources

Business depends on the environment in which they operate for several resources. Business environment supplies several inputs like raw materials, capital and labour which are used by the business for its operations. These inputs are converted into goods and services for satisfying the needs of the market. Without proper supply of inputs, business cannot continue its operations. It is fully dependent upon environment for taking inputs and delivering the required goods or services.

Improves Performance

Business environment has an effective role in accelerating the overall performance of business organisations. Through continuous environmental awareness, managers update their knowledge and skills. Environmental study serves as the medium of educating management. Monitoring of environment provides qualitative information which helps in developing strategic thinking. It enables managers to adopt suitable management practices to control and improve the performance of business.

Helps in Coping with Rapid Changes

Factors which constitute business environment are dynamic in nature. They keep on changing continuously from time to time. These changes include changes in customer’s preferences, fashion, technology, economic conditions etc.

Proper understanding of the business environment helps business in detecting all these frequently occuring changes easily. It enables them in dealing with these changes efficiently by taking appropriate actions at right time. Managers through continuous monitoring of environment are sensitive to such changes and respond effectively.

Enhances Business Image

Business through proper understanding of its environment are able to improve its public image. They are more responsive and sensitive to the environmental needs through proper knowledge of business environment. Study of environment provides them information for making realistic plans and implementing them effectively. Businesses are able to provide better service and serve the interest of entire society. People are happy with the business and develop confidence towards it. This enables in developing a better image in market.

Assist in Facing Competition

Business environment communicates all details about competitors in market to business. Awareness regarding the actions and strategies of competitors is crucial for every business for meeting competition effectively. It helps business in formulating plans and policies in accordance with the competitor’s actions. Businesses are able to face challenges and competition in market through systematic planning in an efficient way.

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.

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