Q. What is Business Environment ? What are its characteristics?
Ans. MEANING OF BUSINESS ENVIRONMENT: Business Environment (means) is the sum total of all those factors which influence the business has no control. It has both threats and opportunities for the business. Threats refers to the negative changes that occurs in business environment and hinders the performance of the business organisation. Opportunities refers to the positive changes that occurs in the business environment and helps the organisation to improve its performance. The study of business environment enables the managers to identify threats and opportunities.
Thus, Business Environment refers to the all the external factors which have a bearing on the functioning of the business. It refers to all forces which are external to business and beyond its control.
Definition:
According to Prof. Keith Davis, “Business Environment is the aggregate of all conditions, events and influences that surround and affect the business.”
In the words of V.P. Michael, “Business Environment is the sum total of the environmental factors which provide an atmosphere for the business. It has a direct relation with business organisation which operates in it.”
CHARACTERISTICS OF BUSINESS ENVIRONMENT:
(1) Totality of external forces: Business environment is the total of all those forces/factors which are available outside the business and over which the business has no control. That’s why its nature is of totality.
Or
Aggregation of external forces: A business environment is the aggregate of all the external forces such as individuals, consumers, government and legal matters that affect the performance of an organisation either positively or negatively.
(2) Specific and general forces: Forces outside the business can be divided into two parts:
a) Specific: These forces affect the firms of an industry separately. e.g. customers, suppliers, investors, competitive firms etc.
b) general: These forces affect the firms of an industry equally. e.g. social, political, legal and technical situations.
Specific forces affect the business directly and immediately in its day-to-day working whereas general forces have an indirect effect on the business.
(3) Interrelatedness: Different factors or components of business environment are related to each other and affect each other.
(4) Dynamic nature: Components of business environment changes continuously. So, the business environment is dynamic in nature which means it keeps on changing from time to time, reigon to reigon and country to country.
(5) Uncertain: Business environment creates uncertainty for business firms as it is very difficult to predict environment and changes of future. Because of its uncertain nature, its study and analysis is difficult.
(6) Complex in nature: Business environment is a combination of many factors that have an Inter relation with business in many ways. These factors affect each other also. It is very difficult to know how these factors will influence the business. Thus, business environment is complex in nature.
(7) Relativity (Relation): Business environment is a relative concept. It means business environment is related to local conditions. That’s why business environment is different in different countries and even different at different places in the same country. For eg. political conditions, religion, beliefs etc are different in different reigons.
(8) Multi-faceted: Environment is multi-faceted. The same environment trend can have different effects on different industries. The same (one) can be threat for one company and opportunity for another company.
(9) Far reaching impact: Environment has far reaching impact on business. Business and its environment are interdependent to each other. So any change in an environment has a direct impact on organisation in different ways.
OR
CHARACTERISTICS OF BUSINESS ENVIRONMENT:
(1) Complex in Nature: Environment is a combination of many factors like political, economic, legal, social, cultural, technological, etc. These factors affect the business in many ways. Therefore, the influence that they exercise on business cannot be recognised independently.
(2) Dynamic: It is obvious that environment is a mixture of many factors and there are constant changes in some of them. It is only because of these changes in the factors of environment that make environment dynamic. The environmental factors change with passage of time. The plans and policies of business too have to be changed to keep pace with changing environment.
(3) Business Environment Affects Different Firms Differently: It is not necessary that any
particular change in environment should affect all business units in a similar manner. One business unit may welcome a change in environment, while some other business unit may feel adverse effect of the same change. Therefore, environment may affect different business units in different manner.
(4) Business Environment has both Short-term and Long-term Impact: Every change in environment has both short-term and long-term impact on business. The changed environment affects the profitability, productivity and development of business in both short term and long term.
(5) Unlimited Effect of External Environmental Factors: External factors of business environment are uncontrollable. These factors have very deep effect on business. Sometimes the effect of these factors is so deep that it may take the business unit to closure. For example, decision of government to ban wine, whisky will compel wine shops to wind-up their business.
(6) Uncertain: The external business environment is very uncertain. There can be sudden change in it at any time. Because of its uncertain nature, its study and analysis is difficult.
(7) Interdependent Components: Various components of business environment are interdependent of each other. Different components of environment affect each other. For example, economic environment affects social environment and is also affected by it.
(8) Includes both Internal and External Environment: Business environment includes both internal and external environment. Internal environment means environment within the organisation; this environment is within the control of business unit. External environment is outside the organisation and is beyond the control of business unit. Business unit will have to change its activities along with changes in external environment.
