Business Environment

Business Environment

The term “environment” means the totality of all the factors which are external to and beyond the control of individual business enterprises and their managements. Andrew defines “the environment of a company as the pattern of all external influences that affects its life and development.” Environment furnishes the macro-context; the business firm is the micro unit. The environmental factors are essentially the “givens” within which firm and their management must operate. Katler Philip says, “A company’s environment consists of factors and forces that are external to the business management function of the firm and that impinge on the management’s ability to develop and maintain successful transactions with its customers.”

Business cannot be separated from its surrounding environment. Everything that surrounds and affects business inevitably becomes a part of its environment: the natural surroundings, the history of these surroundings, the economic condition, the political-legal system, cultural pattern, and society as a whole. A business cannot and does not exist in a vacuum. Business is a part of the whole social system. Economic system arises and modified, from time to time by various factors such as:

·         The laws of the land,

·         The social customs, traditions, culture and the value system in the country,

·         The decisions of the political leaders, parliament, judiciary,

·         The set of belief and contractual agreements made by people in order to carry on exchange

Business has to continuously adjust itself towards surrounding environment. Thus it can be said not only man but business too is a slave of his environment. The business environment is always changing, constraining, and uncertain. The environmental factors have a profound impact on business is clear from the fact that environmental analysis and diagnosis are among the first step in the strategic management.

Meaning and Definition:

Environmental analysis is defined as the process by which strategists monitor the economic, governmental, legal, market/competitive, supplier/technological geographic and social settings to determine opportunities and threat to their firms. According to William Glueck and Jauch, “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 these factors are socioeconomic, technological supplier competitors and government.”

According to Richman and Copen, “Environmental factors or constraints are largely, if not totally, external and beyond the control of industrial enterprises and their managements. These are essentially the givers within which firms and their managements must operate in a specific country and they vary often greatly from country to country”. In the words of Arthur K. Weimer, “Business environment encompasses the climate or set of conditions-economic, social, political or institutional in which the business operations are controlled.”

The renowned marketing scholar Philip Kotler explains the organisations environment as “the set of interacting institutions and forces that affects the organisation’s ability to serve its markets.”

The environment means the economic, social, technological, legal, political, governmental, and other factors that provide an opportunity or act as a threat for business firms. We can summarise the meaning of the business environment in the following points:

·         The surrounding conditions or forces of business are known as its environment.

·         The social, political, or legal settings of the society mainly constitute the business environment.

·         The environment is dynamic and its changes influence the business decisions.

·         The threats or challenges could be predicted from the study of the environment so that the firm can be prepared to meet them.

The business firm operates with its environment from which it receives the necessary “resources” and “opportunities” for its existence, future growth, and survival. A business needs to organise factors of production and these resources come from the environment. The firm’s environment may be broadly divided into two categories:

(i)                        The internal environment: The internal factors are generally regarded as controllable factors, because they are within the control of the company; it can alter or modify such factors.

(ii)                     The external factors: The external factors on the other hand consist of those factors that are beyond the control of a company. The external environmental factors such as the economic factors, socio-cultural factors, government and legal factors demographic factors cultural and many other such factors.

(iii)                  As the environmental factors (External) are beyond the control of a firm, the firm has to cooperate and adapt with its environment i.e. its ability to properly adapt and adjust the environment and take advantage of favourable external environment. Although it is easy to speak of a firm’s environment but to understand and change those factors in favour of the company is equally difficult. The figure below gives a visual impact of the two constituents of the environment.

 

 The significance of the environmental factors can clearly be understood from the following advantages:

1.      Demand forecasting can be done.

2.      Product feature can be identified

3.      Brand positioning can be done through pricing policy so that an edge may be achieved and market share can be grabbed.

4.      For the sales promotion knowledge of the cultural environment is essential.

5.      Meeting out the competition by modification and improvement in the product.

6.      Fulfilling the legal requirement by the product by study of legal environment.

7.      Planning the investment decisions.

8.      Economic conditions and the cost estimates provide knowledge to determine the standard of living.

Thus, for the survival and growth of business firms the study of business environment is essential.