Meaning and Definitions of Business Environment
Business Environment means the aggregate of all those factors, conditions, situations which directly affect the working of a business organization. The term business environment has been defined by the various authors as follows-
- According to William S. Lawrence, “The environment includes factors outside the firm which can lead to opportunities or threats to the firm. Although there are many factors, the most important of these factors are socio-economic, technological, suppliers, competitors and government.”
- According to Prof. Weimer, “Business environment encompasses the climate or set of conditions – economic, social, political or institutional in which business operations are conducted.”
- Keith Devis opined, “Business environment is the aggregate of all conditions, events and influences that surround and affect it.”
Conclusion: It may be said that the external factors which affect the working of a business is called ‘business environment’. The working of a business is influenced by economic or non-economic environment. Domestic and all economic factors, events and policies which affect. economics are all economic environmental factors. The non-economic factors are social environment, political environment and policies environment and legal environment.
Main components (Micro & macro) of business environment
The main components of business environment are as under-
Economic environment (micro environment) –
A business enterprise draws certain inputs for the production from the society and transmits them into the external environment as finished products. Following factors are included in economic environment.
- Suppliers of inputs – Every business enterprise draw physical, human and financial resources from the environment. The importance of reliable sources for supply is an important force in economic environment of a company and is necessary for the smooth functioning of the business.
- Customer- A customer may be defined as a person who as person has a favourable impression of the company and its products and services. A business enterprise owes a primary obligation to give fair deal customers. They should be charged a fair and reasonable price. The supply of goods and services should be of uniform standard and of reasonable quality.
The distribution of goods and services should be wide spread so that customers do not face any problem in procuring them. The business enterprise should not mislead the customers by false misleading and exaggerated advertisements.
Political environment –
The economic policy of the government has a great impact on business. A restrictive import policy or a policy for protecting the home industries any help the export competing industries, while a liberalization of the industries may create difficulties for them, similarly an industry that falls within the priority sector in terms of the government policy gets a number of incentives and other positive support from the government, whereas those industries which are regarded as inessential may have the adds against them. An industries undertaking may take advantage of external economies by location itself in a large city but the government may discourage location in such places and persuade industries to go to the backward areas.
Social environment (macro environment) –
This is too general a entity which influence almost all enterprises in a similar manner. It is a complex of factors such as social traditions, values and beliefs, standard levels of literacy and education, the ethical standards and state of society. the extent of social satisfaction, conflict and cohesiveness and so forth. From the business organization’s point of view, it may include the following:
- Population trends – Population trends like the size, growth rate. age composition, sex composition etc. of the population, family size, the size of the population, population level, care, relation etc. are all relevant to business. The sizes of the population, population growth rate, age composition, life expectance, family size, occupation status, employment pattern etc. affect the demand for goods and service,
- Individual needs – An individual works to satisfy his physical needs like good, cloth and shelter. But a person wants more that his personal needs. He wants more cooperation in work planning. In traditional occupations, decision making is centralized at top level of management. In decision making process employees and workers should also be involved. It wold check the mobility of labour.
- Cultural factors- Cultural environment consists of factors related to human relationship and the impact of social attitudes and cultural values which has bearing on the business of the organization. The belief, value and norms of a comity determine how individuals and organizations should interrelated. The core beliefs of a particular society tend to the persistent. It is difficult for business to change because these core values, which become determinates of its functioning.
The cost of ignoring his customs, traditions, taboos, tastes and preferences etc. of people could be very high. The buying and consumption habits of the people, their language, beliefs and values, customs and traditions tastes and preferences, education etc. affect business.
Legal environment –
In business, legal environment is the branch of political environment. The type of government running a country has a powerful influence on business. Political and pressure groups influence and limit organizational growth. The business in our country is regulated by following-
- Contract Act.
- The Companies Act.
- Foreign Exchange Management Act.
- Factories Act.
- Industries disputes Act.
- Workers Compensations Act.
- Industrial Development and Regulations Act.
- Minimum Wages Act.
- Essential Commodities Act,
- Income Tax, Excise duties, Custom duties, Tariff, Sales tax and other laws related to tax.
- Employee’s Provident Fund Act.
- Consumer Protection Act.
- Employee’s State Insurance Act.
- Environment Protection Act.
- Sick Industrial Company Act.
Technological environment –
Technology has changed the way of people communicates with the advent of internet and telecommunication system. Technology has changed the ways of low business operates now.
The technology and business are giggly inter-related and inter dependent also. The fruits of technological research and development are available to society through business only and this also improves the quality of life of the society.
- Price-Discrimination- Degree & Essential Conditions
- Price determination under Oligopoly
- Kinked Demand Curve
- Monopolistic competition- Price & Output Determination
- Wages- Meaning, Causes, Marginal theory etc.
- Theory of Profit- Modern, Uncertainty Bearing & Rent Theory
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