BUSINESS ENVIRONMENT

Business Environment

Meaning: The term environment refers to the totality of all the factors which are external and out of control of individual business enterprise and their management. The business firm is a micro-economic unit. The environment furnishes the macro-economic context within which the firm operates. The firm, individually, does not have much influence on the environment. Of course, the collective behavior of different firms may affect the business environment.

                        Business environment may be classified on different criteria, such as time, space, forces and factors. Based on ‘time’, it refers to the past, present and future environment of business. Based on ‘space’, it refers to the local, regional, national and international environment of business. Based on ‘forces’ of market such as supply, price etc., or non-market institution like government, we may distinguish between market and non-market environment of business.  Also, environment can be assessed in quantitative terms based on data or qualitative terms based on systems of policy as proceower. Finally based on the relevance of economic or non-economic factors, we may classify as economic and non-economic environment of business. Such classification of environmental variables is mainly for reasons of analytical convenience to understand their pull and/or push. In real world situation, the environmental variables interact with each other. Such interaction can be conceptualised through the formal presentation of ‘Interaction Matrix’. Because of the involved nature of these interactions, the environment often appears very complex, dynamic and sometimes beyond any theoretical comprehension. But for an efficient operation of the firm, there is no alternative to identification, description and explanation of its business environment, immediate and remote.

                        The business environment poses threats to a firm or offers immense opportunities for potential market exploitation. Stressing this aspect, William F.Glueck and Lawrence R.Jauch wrote thus:”The environment includes factors outside the firm which can lead to opportunities for or threats to the firm. although there are many factors, the most important of the sectors are socio-economic, technological, supplier, competitors and government.”

From the standpoint of analysis and scanning, perhaps the most useful distinction is between ‘economic’ and ‘non-economic’ environment.

ECONOMIC ENVIRONMENT OF BUSINESS

                        Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of business

                        The economic conditions of a country-for example, the nature of the economy, the stage development of the economy, economic resources, the level of income, the distribution of income and assets etc.,are among the very important determinants of business strategies.

                        The economic policy of the government has a very great impact on business. Some types or categories of business are favorably affected by government policy, some adversely affected, while it is neutral in respect of others. For example, a restrictive import policy, or a policy of protecting the home industries, may greatly help the import-competing industries, while a liberalization of the import policy may create difficulties for such industries.

                        In India, the govt.’s concern about the concentration of economic power restricted the role of the large scale industries and foreign concerns to the core sector, the heavy investment sector, the export sector and backward regions.

                        The monetary and fiscal policies, by the incentives and disincentives they offer and by their neutrality, also affect the business in different ways.

                        The present day economic environment of business is very complex.

NON-ECONOMIC ENVIRONMENT OF BUSINESS

                        The identification of non-economic environment is particularly essential in view of the fact that it influences and gets influenced by the economic environment. The non-economic environment of business includes the sociological factors, educational-cultural factors, historical factors, and the physical factors.