Meaning of Business Environment
Intro: Success of business depends on adapting itself to the environment within its functions.
When there is a change in the government policies, the business has to make the necessary changes to adapt itself to the new policies. Same goes with technology etc.,
Meaning: The term 'business environment' connotes external forces, factors and institutions, that are beyond the control of the business and they affect the functioning of a business enterprise.
It include customers, competitors, suppliers, government and the social, political, legal and technological factors etc.,
It is defined as, the set of external factors, such as
economic factors, social factors, political factors, legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.
Diagram of Business decisions Pg. no: 68
Importance of Business Environment
Determining opportunities and threats
Giving direction for growth
Identifying firm's strength and weakness
Features of Business Environment
Business environment is the sum total of all the factors external to the business firm and that influence their functioning
It covers factors and forces like customers, competitors, suppliers, government, social, political, legal, and technological conditions.
It is dynamic in nature (means, keeps on changing).
The changes in business environment are unpredictable.
Business environment differs from place to place, region to region and country to country.
Types of Business Environment
The factors that that affect the economic environment are:
1. Economic conditions
Gross domestic product, percapita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc., help in improving the pace of economic growth.
2. 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 policies are:
a) Industrial policy
The industrial policy of the government covers all those principles, policies, rules, regulations, and procedures, which direct and control the industrial enterprises of the country and shape the pattern of industrial development.
b) Fiscal policy
It includes government policy in respect of public expenditure, taxation and public debt.
c) Monetary policy
It includes all those activities and interventions that aim at smooth supply of credit to the business and a boost to trade and industry
d) Foreign investment policy
This policy aims at regulating the inflow of foreign investment in various sectors for speeding up industrial development and take advantage of the modern technology
e) EXIM policy (Export-Import policy)
It aims at increasing exports and bridge the gap between export and import. Through this policy, the government announces various duties/levies. The focus now-a-days lies on removing barriers and controls and lowering the custom duties.
3. Economic system
The world economy is primarily governed by three types of economic systems:
a) Capitalist economy
b) Socialist economy
c) Mixed economy
India has adopted the mixed economy system which implies co-existence of public and private sector
a) Social environment
b) Political environment
c) Legal environment
d) Demographic environment
e) Technological environment
f) Natural environment