Understanding Business Environment | Nature | Features

Introduction to Business Environment

The success of any business enterprise depends mainly upon the ability of the business managers to forecast the future and formulate policies and strategies to achieve the cherished goals of the enterprise.

Business Environment - Nature and Features
Image: Business Environment – Nature and Features

A business enterprise is basically a micro unit and its success or failure mainly depends upon the factors like the resources at its command, the physical facilities available to it like plant and equipment, its investment policy, its objectives, size, structure etc., its relationship with the people inside the organization etc.

But these factors are internal factors although they do exercise a vital influence on the scope and performance of the firm. These factors, being internal in character can be controlled, modified or altered.

Internal and External factors in Business environment

A business firm cannot operate in isolation. It is a part and parcel of the social, political, moral and economic fiber of the country. These forces have a direct relationship with the activities of all the business firms. These factors are external factors and the firm can exercise no control over their interaction.

The external factors collectively constitute the environment in which all business firms should operate. The impact of the factors is not similar over the performance of all the business firms. Some of them are direct while some others affect the firms only in an indirect way. But we should not conclude that direct factors are so vital, while the indirect factors have less significance.

Indirect factors also affect the activities of the firm much more effectively than certain direct factors. Hence, such indirect factors should also be given due consideration while formulating business policies and strategies. Again the impact of the environmental factors is not similar all over the world. They produce different effects in different countries and hence vary.

Moreover, these factors themselves vary from country to country and region to region within the same country and also from time to time. Therefore, it is clear that the effects of the environmental factors are neither static nor fixed. Hence no hard and fast rules can be framed to meet the challenges of these factors.

In spite of these difficulties, the business firm should evolve suitable policies and adjust themselves to the changing environmental framework. In our present study also, we are elaborating only the external environmental factors in the present Indian context.

Chief features of environment

1. Environment is not a single factor but a bundle of various factors, which are only external.

2. These factors are constantly changing.

3. If the firm fails to cope with the changing situation, it will certainly fail in its venture. Hence success is assured only to such firms, which readily change their policies and strategies to suit with the changing situation.

Nature of Business Environment

The business environment contains a number of factors. They are of different types and influence the business also in different degrees. Of them certain factors have a favorable impact on some business while other factors adversely affect them. A factor that has a favorable effect on a particular business may have adverse effect on other business.

Environmental factors influence certain business directly and other business indirectly depending upon its intimacy with the firm. Based on the extent of its intimacy with the firm, the environmental factors may be classified into two types namely, the internal environment i.e. factors internal to the firm, and external environment i.e. factors external to the firm.

The internal factors are controllable factors because the company has control over these factors. On the other hand, external factors are beyond the control of a company. Therefore the external environmental factors are generally regarded as uncontrollable factors. The external environmental factors can be again classified into two types such as

  • Micro environmental factors, and
  • Macro environmental factors.

Micro environmental factors have a direct and close impact on the enterprise. Examples of micro environmental factors are suppliers, distributors, debtors, creditors etc.

On the other hand, macro environmental factors are those, which have a general impact on the industry to which the enterprise relates. Examples of macro environmental factors are taxation policy, pricing policy etc. of the Government.

Therefore, one can categorize business environment as shown below

1. Internal environment

2. External environment.

  • Micro environment.
  • Macro environment.

Features of Business Environment

The following are the main features of business environment:

1. Dynamic and Ever Changing: Business environment is dynamic and ever changing. It is not static. Many elements in the environment undergo changes, which makes the business also to change accordingly. Hence the business policy should be dynamic so that business can change it as per the changing environment.

2. Mutual interdependence between Business and Environment: Environment influences business and in turn, to a certain degree, it will influence the external forces. Likewise, each environmental factor influences other factors and got influenced by others also. Thus, a business firm and its environment are mutually interdependent which interacting with each other continuously.

3. Business Firm along with other Firms in the Environment Change the Environment: A particular business firm may not be in a position to change its environment by itself. However, it can change the environment in a manner favorable to it along with other firms in the environment.

4. Strict Adherence to Rules and Regulations: In every country, Governments laid down rules and regulations to ensure healthy growth and development of the economy. A firm is required to operate the business as per the rules and regulations laid down by the Government.

5. Varied Environmental Forces: The environment forces vary from country to country. The environment prevalent in India may not be the same, as the environment exists in America. The order and the intensity of forces also vary from country to country. It may be different from region to region.

6. Complexity of Environment: Business environment is complex. Technological developments, Government rules and regulations, labour environment and competitive environment are relatively complex in nature.