CHAPTER -3
BUSUINESS ENVIRONMENT
Business is an economic activity. It has direct and indirect relationship with society. No business
can exist in the society without considering the forces such as government, competitors, customers,
suppliers, creditors etc.
Definition
‘ Business environment is the aggregate of all conditions, events and influence that surround and
affect it.’ – Keith Davis
Business environment is the sum total of all the factors and forces in society which has direct or
indirect influences on business and its activities. Business environment may be defined as a set of
external forces which affect the business activities such as economic factors, government and legal
factors, technological factors and demographic factors. It also includes all interest groups around the
business like suppliers, customers, employees, creditors etc.
FEATURES OF BUSINESS ENVIRONMENT
1 .Totality of external forces- Business environment is the sum total of all things external to
business firms and which are out of control.
2. Specific and general Forces:- Business Environment consists of both specific and general
forces.Specific forces have direct impact on individual enterprises. Eg: investors, suppliers,
competitors etc. Whereas general forces have indirect impact on all the business enterprises. For eg:
social, political, legal, technological condition.
3. Interrelations:- Various elements or parts of business environment are interrelated. For eg:
increased awareness for health care have increased the demand for fat free cooking oil, sugar free
products, health resorts etc.
4. Dynamic nature: The business environment is flexible as it keeps on changing in terms of
technological improvement, changes in consumers taste, and fashion.
5. Uncertainty:- Business environment is highly uncertain as one cannot predict the future happening
exactly.
6. Complexity:- Business environment is a very complex phenomenon. It consists of numerous
interrelated and dynamic conditions or forces which arise from different sources. Therefore it is very
difficult to comprehend its meaning and state what constitutes business environment.
7. Relativity:- Business environment is relative since it differ from country to country and even from
region to region. For eg:- demand for saree may be high in India, where is it almost nil in France
Prepared By: JOHNSON KOSHY , HSST COMMERCE, GHSS KALLAR IDUKKI Page 1
, IMPORTANCE OF BUSINESS ENVIRONMENT
Successful business persons would be those who may be ready to adapt to its environment. An in-
depth understandings of the environment helps in planning and policy formulation. The importance of
the environment is discussed under the following heads
1. Identifying business opportunities and getting the first mover advantages
Identification of opportunities possible only through awareness of environment. Early identification
of opportunities helps an enterprise to be the first to exploit them instead of losing them to
competitors. Eg:- V – Guard establishing their amusement park Wonder la, MarutiUdyog Ltd is
small car segment, Eastern’s packed food items ( ready to eat, ready to cook items) etc.
2. Identify threats and early warning signal
Threats refer to environmental changes that will hinder a firm’s performance. Environmental
awareness helps mangers identify various threats. It provides the business early warning
signals to plan its future course of action.
3. Tapping useful resources:-
Environment is a source of various resources to business enterprises. Environment provides
inputs such as materials, machines, finance water, lab our etc. to the enterprises. The
enterprise assembles these inputs. The enterprise in turn supplies the environment with its
outputs such as goods and service for customers, taxes to govt. etc. thus environment act as a
sources of inputs and an outlets for outputs. Therefore enterprise should design their policies
making a provision for getting resources they need and giving what the environment need.
4. Coping with rapid changes:- Today’s environment highly dynamic. To cope up with rapid
changes in the environment, management must be dynamic and examine the environment and
develop a suitable course of action to withstand competitors in the market.
5. Assisting in planning and policy formulation:- Environment provides both opportunities and
threats to a business. Environmental monitoring gives vital information which can be taken as
the basis for deciding the future course of action (planning) or framing guidelines for decision
making (policy)
6. Helps in improving performance:- The future of environment is very much linked with what
is happening the environment. Those enterprises which continuing monitor their environment
and adapt suitable policies and business practices will improve their performance
DIMENSIONS / FACTORS / ELEMENTS OF BUSINESS ENVIRONMENT
Prepared By: JOHNSON KOSHY , HSST COMMERCE, GHSS KALLAR IDUKKI Page 2
BUSUINESS ENVIRONMENT
Business is an economic activity. It has direct and indirect relationship with society. No business
can exist in the society without considering the forces such as government, competitors, customers,
suppliers, creditors etc.
Definition
‘ Business environment is the aggregate of all conditions, events and influence that surround and
affect it.’ – Keith Davis
Business environment is the sum total of all the factors and forces in society which has direct or
indirect influences on business and its activities. Business environment may be defined as a set of
external forces which affect the business activities such as economic factors, government and legal
factors, technological factors and demographic factors. It also includes all interest groups around the
business like suppliers, customers, employees, creditors etc.
FEATURES OF BUSINESS ENVIRONMENT
1 .Totality of external forces- Business environment is the sum total of all things external to
business firms and which are out of control.
2. Specific and general Forces:- Business Environment consists of both specific and general
forces.Specific forces have direct impact on individual enterprises. Eg: investors, suppliers,
competitors etc. Whereas general forces have indirect impact on all the business enterprises. For eg:
social, political, legal, technological condition.
3. Interrelations:- Various elements or parts of business environment are interrelated. For eg:
increased awareness for health care have increased the demand for fat free cooking oil, sugar free
products, health resorts etc.
4. Dynamic nature: The business environment is flexible as it keeps on changing in terms of
technological improvement, changes in consumers taste, and fashion.
5. Uncertainty:- Business environment is highly uncertain as one cannot predict the future happening
exactly.
6. Complexity:- Business environment is a very complex phenomenon. It consists of numerous
interrelated and dynamic conditions or forces which arise from different sources. Therefore it is very
difficult to comprehend its meaning and state what constitutes business environment.
7. Relativity:- Business environment is relative since it differ from country to country and even from
region to region. For eg:- demand for saree may be high in India, where is it almost nil in France
Prepared By: JOHNSON KOSHY , HSST COMMERCE, GHSS KALLAR IDUKKI Page 1
, IMPORTANCE OF BUSINESS ENVIRONMENT
Successful business persons would be those who may be ready to adapt to its environment. An in-
depth understandings of the environment helps in planning and policy formulation. The importance of
the environment is discussed under the following heads
1. Identifying business opportunities and getting the first mover advantages
Identification of opportunities possible only through awareness of environment. Early identification
of opportunities helps an enterprise to be the first to exploit them instead of losing them to
competitors. Eg:- V – Guard establishing their amusement park Wonder la, MarutiUdyog Ltd is
small car segment, Eastern’s packed food items ( ready to eat, ready to cook items) etc.
2. Identify threats and early warning signal
Threats refer to environmental changes that will hinder a firm’s performance. Environmental
awareness helps mangers identify various threats. It provides the business early warning
signals to plan its future course of action.
3. Tapping useful resources:-
Environment is a source of various resources to business enterprises. Environment provides
inputs such as materials, machines, finance water, lab our etc. to the enterprises. The
enterprise assembles these inputs. The enterprise in turn supplies the environment with its
outputs such as goods and service for customers, taxes to govt. etc. thus environment act as a
sources of inputs and an outlets for outputs. Therefore enterprise should design their policies
making a provision for getting resources they need and giving what the environment need.
4. Coping with rapid changes:- Today’s environment highly dynamic. To cope up with rapid
changes in the environment, management must be dynamic and examine the environment and
develop a suitable course of action to withstand competitors in the market.
5. Assisting in planning and policy formulation:- Environment provides both opportunities and
threats to a business. Environmental monitoring gives vital information which can be taken as
the basis for deciding the future course of action (planning) or framing guidelines for decision
making (policy)
6. Helps in improving performance:- The future of environment is very much linked with what
is happening the environment. Those enterprises which continuing monitor their environment
and adapt suitable policies and business practices will improve their performance
DIMENSIONS / FACTORS / ELEMENTS OF BUSINESS ENVIRONMENT
Prepared By: JOHNSON KOSHY , HSST COMMERCE, GHSS KALLAR IDUKKI Page 2
