All living creatures including human beings live within an environment. Apart
from the natural environment, environment of humans include family, friends,
peers and neighbours. It also includes man-made structures such as buildings,
furniture, roads and other physical infrastructure. The individuals do not live in a
vacuum. They continuously interact with their environment to live their lives.
Just like human beings, business also does not function in an isolated
vacuum. Businesses function within a whole gambit of relevant environment
and have to negotiate their way through it. The extent to which the business
thrives depends on the manner in which it interacts with its environment. A
business which continually remains passive to the relevant changes in the
environment is destined to gradually fade-away in oblivion. To be successful
business has to not only recognize different elements of the environment but also
respect, adapt to or have to manage and influence them. The business must
continuously monitor and adapt to the environment if it is to survive and prosper.
Disturbances in the environment may spell extreme threats or open up new
opportunities for the firm. A successful business has to identify, appraise, and
respond to the various opportunities and threats in its environment.
The term business environment consists
of two words i.e.
“Business is an activity for acquiring
wealth through buying or selling goods”
“Business refers to the exchange of
goods and services for profit’’
And environment means all the factors
which are surrounding except jeans of
So, Business environment refers to
“All the factors (both internal and
external) are influencing the business
“Business Environment represents a set of
conditions, circumstances and influences that
and affects the functioning of the organization”.
“Business Environment is the climatic or
set of conditions economic, social, political or
institutional in which business operation is
•Business Environment is a dynamic nature
•Business Environment differs because of
country to country and even region to region.
•Media of social change
•It is an uncertainty concept
•It includes both internal and External factors
•It is an inter dependence concept
•It is a changing environment.
Development of broad strategies to ensure sustainability
To foresee the impact of socio-economic changes at the national
and international levels on firm’s ability
Analysis of competitor’s strategies and formulation of effective
To keep oneself dynamic
Business environment is so powerful that it can make
development. It can create employment opportunities and
can pave a way for the rich society. In the absence of
suitable environment, unemployment, poverty, economic
destruction etc. are to be faced by organization.
1. Determining Opportunities and Threats:
2. Identifying Firm’s Strength and Weakness:.
3. Giving Direction for Growth:
4. Continuous Learning
5. Image Building:
6. Meeting Competition:
7. Improving performance:
Components/Factors Affecting Business Environment
Physical & Human
Objectives of business
Vision and mission
Mission & Objectives.
Co. Image & Brand Equity
Non - Economic Environment
Micro environment is the environment that an organization can
influence. It may not be able to Correct all flaws in the
microenvironment, but it as a much better control over the
(1) Suppliers: – They are the persons who supply raw material and required
components to the company. Large companies rely on hundreds of suppliers
to maintain their production. Suppliers with their own bargaining power
affect the cost structure of the industry. They constitute a major force,
which shapes competition in the industry. Also organizations have to take a
major decision on “outsourcing” or “in-house” production depending on this
(2) Customers/Consumers: - Customers are regarded as the king of the
market. Success of every business depends upon the level of their customer‘s
satisfaction. The organizations cannot survive without customers. They will
cease to exist. Customers may or may not be a consumer. Consumer is the
one who ultimately consumes or uses the product or service. A father may
buy a product as a customer for his daughter who will be a consumer. A
consumer occupies the central position in the marketing environment. The
marketer has to closely monitor and analyze changes in consumer tastes and
preferences and their buying habits.
Types of Customers:
(iv) Government and Other Institutions
5) Public: - Any group who has actual interest in business
enterprise is termed as public e.g. media and local public. They
may be the users or non-users of the product.
3) Market Intermediaries: - They work as a link between business and
final consumers. Intermediaries exert a considerable influence on the
business organizations. They can also be considered as the major
determining force in the business. In many cases the consumers are not
aware of the manufacturer of the products they buy. They buy product from
the local retailers or big departmental stores such as Big bazaars,
Subhiksha and Wall Mart, Best Price that are increasingly becoming
popular in some big cities.
(ii) Marketing Agencies
(iii) Financial Intermediaries
(iv) Physical Intermediaries
4) Competitors: - Competition shapes business. A study of the
competitive scenario is essential for the marketer, particularly
threats from competition. Competition may be direct or indirect.
Direct competition is between organizations, which are in same
business activity. At the same time competition can also be
indirect. For example, competition between a holiday resort
and car manufacturing company for available discretionary
income of affluent customers is indirect competition. Every
movement of the competitors affects the business. Business has to
adjust itself according to the strategies of the Competitors.
are major external and
that influence an
decision making, and
The survival and success of each and every business enterprise depend fully on its
economic environment. The main factors that affect the economic environment are:
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic
factors that have great influence on business organizations and their operations. These include
gross domestic product, per capita income, markets for goods and services, availability of
capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All
these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the
economic policies framed by the government from time to time. Some of the important economic
•Foreign investment policy
•Export –Import policy (EXIM policy)
Based on this only organization change /prepare their objectives and goals etc. The government
keeps on changing these policies from time to time in view of the developments taking place in
the economic scenario, political expediency and the changing requirement. Every business firm
has to function strictly within the policy framework and respond to the changes therein.
(c) Economic System: The world economy is primarily governed by three types of economic
systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has
adopted the mixed economy system which implies co-existence of public sector and private
This includes political system, government policies and attitudes
towards the business community and unionism all these have a bearing
on the strategies adapted by the business firms. The stability of the
government also influences business and related activities to a great
extent. It sends a signal of strength, confidence to various interest
groups and investors. Further, ideology of the political party also
influences the business organization and its operations.
You may be aware that Coca-Cola, a cold drink widely used even
now, had to wind up operations in India in late seventies. Again the
trade union activities also influence the operation of business
enterprises. Most of the labour unions in India are affiliated to various
political parties. Strikes, lockouts and labour disputes etc. also
adversely affect the business operations. However, with the competitive
business environment, trade unions are now showing great maturity
and started contributing positively to the success of the business
organization and its operations through workers participation in
management. It compares political stability and policies of the govt.
ideology of parties and personal interest on politicians
The social environment of business includes social factors
like customs, traditions, values, beliefs, poverty, literacy,
life expectancy rate etc. The social structure and the values
that a society cherishes have a considerable influence on
the functioning of business firms.
For example, during festive seasons there is an
increase in the demand for new clothes, sweets, fruits,
flower, etc. Due to increase in literacy rate the consumers
are becoming more conscious of the quality of the products.
Due to change in family composition, more nuclear families
with single child concepts have come up. This increases the
demand for the different types of household goods. It may
be noted that the consumption patterns, the dressing and
living styles of people belonging to different social
structures and culture vary significantly.
If any change any one of these, organization changes their
Technological environment include the methods,
techniques and approaches adopted for production of goods
and services and its distribution. The varying technological
environments of different countries affect the designing of
For example, in USA and many other countries
electrical appliances are designed for 110 volts. But when
these are made for India, they have to be of 220 volts. In
the modern competitive age, the pace of technological
changes is very fast. Hence, in order to survive and grow in
the market, a business has to adopt the technological
changes from time to time. It may be noted that scientific
research for improvement and innovation in products and
services is a regular activity in most of the big industrial
organizations. Now a day’s in fact, no firm can afford to
persist with the outdated technologies.
This refers to set of laws, regulations, which influence the
business organizations and their operations. Every business
organization has to obey, and work within the framework of the law.
The important legislations that concern the business enterprises
•Companies Act, 1956
•Foreign Exchange Management Act, 1999
•The Factories Act, 1948
•Industrial Disputes Act, 1972
•Payment of Gratuity Act, 1972
•Industries (Development and Regulation) Act, 1951
•Prevention of Food Adulteration Act, 1954
•Essential Commodities Act, 2002
•The Standards of Weights and Measures Act, 1956
•Monopolies and Restrictive Trade Practices Act, 1969
•Trade Marks Act, 1999
•Bureau of Indian Standards Act, 1986
•Consumer Protection Act, 1986
•Environment Protection Act
•Competition Act, 2002
Besides, the above legislations, the following are also form part of the legal
environment of business.
This refers to the size, density, distribution and growth rate of
population. All these factors have a direct bearing on the demand
for various goods and services.
For example a country where population rate is high
and children constitute a large section of population, and then
there is more demand for baby products. Similarly the demand of
the people of cities and towns are different than the people of
rural areas. The high rise of population indicates the easy
availability of labour. These encourage the business enterprises
to use labour intensive techniques of production. Moreover,
availability of skill labour in certain areas motivates the firms to
set up their units in such area. For example, the business units
from America, Canada, Australia, Germany, UK, are coming to
India due to easy availability of skilled manpower. Thus, a firm
that keeps a watch on the changes on the demographic front and
reads them accurately will find opportunities knocking at its
This environment is the gift of nature. This environment
consists of land, water, air, climate, minerals; forest
vegetation etc., every aspect of business depends upon
natural environment. Business is greatly influenced by the
nature of natural environment.
For example, sugar factories are set up only at those
places where sugarcane can be grown. It is always
considered better to establish manufacturing unit near the
sources of input. Further, government’s policies to maintain
ecological balance, conservation of natural resources etc.
put additional responsibility on the business sector.