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Types of business environment

Kinds of business environment

Kinds of business environment

The environment in which an organization exists can be broadly divided into two parts –

  1. Internal environment –

    Internal factors are those factors which a business has acquired or which can be acquired by a business according to its requirements and capacities, internal factors determine the level of operation. Following factors are included in internal factors.

  • Financial resources –

    The financial resources indicate to what extent the firm can make commitment to business activities? What would be the level or production? What should be the level of production? It is directly influenced by the availability of funds, expenditure control are of crucial importance in every organization. A business firm should try its best to make the maximum utilization of its financial resources. If funds are not utilized economically and in profitable process they are transferred to some other process. The loss of business from process.

  • Physical resources –

    Physical resources of a business comprise following assets such as plant machinery, land and building, raw materials etc. regular supply or raw materials is necessary for smooth functioning of a business unit. Factory should be established at a place where physical resources are easily available.

  • Technical resources –

    The state of technology at any one time is an extremely important factor affecting the success of any business. Any business that wishes to survive in the ever changing world must keep abreast of technology applicable to its pre-cuts and services and to its methods of operations. A business unit determines the level of technology for the operation of activities. Business firm can develop its own technology or it can acquire from the market.

  • Human resources –

    Human resource helps the organization to much factors are closely interrelated. Human resource helps the organization to much its man power with skills necessary for achieving its objectives.

  1. External environment –

    External environment refers to external aspects of environment which have influence on the functioning of business. External environment is very crucial for the success of a business. The external environment consists of customers, competitors, government policies; society etc. following factor are included in external environment.

  • Customers-

    Demand for products and services has great impact on the reaction of the customers. Customers and business are interdependent. The aim of business is to create and retain customers. To succeed in capturing customers, a business must collect the information regarding demand for product, liking and disliking of customers, customers expectations from the product, their purchasing power. A business has to closely monitor and analyse changes in customer’s tastes and preferences and their buying habits, as the major task of a business is to create and retain customers, monitoring the customer’s sensitivity is prerequisite for the business success.

  • Competitors –

    A firm’s competitors include the other firms which market the same or similar products and also those who compete for the discretionary income for the consumers. For the existence and survival, a business must be aware of strengths and weaknesses of the competitors. For example, the market strengths of competitor will provide guideline to another business unit in formulation its sale plans. A business undertaking should analyze the price determined by the competitors. Conditions and rule of sale, after sale services before a formulation its policies.

  • Government-

    Business is directly guided and controlled by government policies. Government rules and regulations related with control and economic policies may determine the area in which private sector may enter. For the centralization of industries in specific place and area, the government may provide tax concessions, economic assistance and financial incentives.

  • Society –

    A business exists within a social system and gets facilities from it. They owe obligations for the society as a whole. It is the obligation of management to protect the interest of society. A business undertaking should produce goods and services according to the taste and preference of the customers. A business should function according to the expectation of the society.

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