Classification of Business Environment
Economists have classified Business Environment as Static environment, Dynamic environment, Internal environment, External environment, Market environment and Non-market environment.
Lets study about them briefly as follows.
1. Static Environment
Business is affected by multiplicity of factors and forces, which constitute the environment of business. As most of these factors are uncertain and also unpredictable, the business firm will not have any control over them. However, certain factors may remain fairly static.
For example, it takes several decades or even centuries to change the socio-psychological aspects and attitudes of the people in an economy. The static environment makes the task of business managers quite easy because they can formulate their policies with confidence and certainty. Traditional and backward economies will have comparatively static environment.
2. Dynamic Environment
In a dynamic environment, factors in the environment change very quickly, which cannot be anticipated easily. Development in the fields of transportation, communication etc. has made the world a closer one. Besides, economic environment also changes over time. In a dynamic economy, population, human wants, capital resources, technology etc. are continuously changing. Consequently, economic environment also changes.
To meet the needs of ever-growing population, high-yielding techniques of agricultural production should be used, more industries should be established and several infrastructural facilities including health care, medical facilities and educational opportunities should be developed. The Government has to change the monetary and fiscal policies to cope with the changing conditions by regulating or controlling business activities. The nature of human wants, tastes, preferences etc. also should be forecasted.
The business manager should be very alert in foreseeing the changes in dynamic factors of the environment. He should revise the business policies as per the changes forecasted.
3. Internal Environment
Internal environment refers to the internal factors of the business. It influences the strategy of business operations and decisions. The value system of the founders of the business enterprise, the mission and objectives of business organization and the business policies adopted contributing to the success of the business are all matters connected with the internal environment of the business.
The organizational structure of the business firm, the composition of Board of Directors and their direction to the business are all some of the important internal factors influencing the decisions undertaken in the day-today business operations. The skill, quality, morale and attitude of the work force in the business organization contribute a lot towards the strength or weakness of the organization. All these factors play an important role in shaping the fortunes of the business.
4. External Environment
External environment refers to those factors, which are outside the business. The business unit will not have any control over these factors. Almost all the factors we had discussed already under economic and non-economic environment hold good for external environment of the business. However, this external environment of business has been classified into two namely,
- Micro environment, and
- Macro environment.
Micro environment includes those factors, which act and react in the immediate environment of the business enterprise. They affect the performance of the company. It includes suppliers of raw materials, marketing intermediaries, competitors in business, customers and also the public.
2. Macro Environment
The macro environment consists of societal forces, which affect the micro environment. These are demographic factors, economic factors, technological factors and also political and cultural forces. International factors also fall within the scope of macro environment. It is obvious that the factors in the micro environment are more intimately linked or associated with the business unit than the macro factors. The micro or macro factors need not affect all the firms in a particular way.
The prospects of a business depend not only on its resources, but also on the environment. An analysis of Strengths, Weaknesses, Opportunities and Threats (SWOT) is very much essential for the business policy formulation.
5. Market Environment and Non-Market Environment
We may distinguish between market environment and non-market environment. Market environment tells about how the business firm’s environment is influenced by market forces like demand and supply of the products of the firm, the number of firms competing in the market, similar products etc. resulting in either price-competition or non-price competition by the competing firms. Non-marketing environment denotes the laws enacted by the Government, social traditions and other factors.