Interaction between Environmental Factors

Interaction between Environmental Factors 

  The economic and non-economic factors of business environment exercise a strong influence with each other. Business also has influences on these factors. Now, let us discuss haw environmental factors interact with each other.

 (1) Interaction between Natural Environment of a country and Economic Environment of Business in that country: We have already discussed the state of deteriorating natural or physical environment. The traditional view was that natural environment has been a gift of nature available for human exploitation; resources such as land, water, rainfall minerals were seen as gifts of nature. These are to be used for betterment of human society. Now, we have seen too much deterioration or depletion in the availability of natural resources and the threats of over exploitation are known. A number of legislations have been enacted in many countries to conserve natural resources and to conserve the physical environment for future generations. The environmental legislation may impose a constraint on the expansion of an existing business. On the other hand, steps are being advocated for bringing about a balance between nature and human activities. The expansion of plant, scale of output the organisation of firms obviously important for economic development. Thus, in every industrialised society business has social responsibility to conserve and save resources for posterity. To the extent this social responsibility is not discharged, laws relating to environmental protection will retard growth. It is therefore need of the hour to meet environmental standards and grow safe.

(2) Interaction between Historical Environment of business and Economic Environment:

These two are interdependent. The present (economic) environment of business can be treated as a legacy of its past historical environment. Every business has a history, and every past event has a lesson to teach. As a result, all present day problems can also be handled in terms of experience. For example, the economic environment of business in India is the outcome of the colonial rule, which it had for quite long. The British Empire was interested in colonies so that it could easily get required raw material for its industries and sale the finished products in assured colonial markets. The colonies thus supplied raw material and consumed the manufactured goods. History is storehouse of information and lessons; it has guidelines for present economic decisions.

(3) Interaction between social-cultural Environment and economic environment: The social attitude towards business and management is a key factor that determines how many people will choose business as an activity and to management as a career. If business has social reputation as a respectable occupation, commerce and industry would develop rapidly and professional managers will emerge to manage the modern business houses. On the other hand, if there is conflict between labour and management, instead of cooperation, a representative system is required to solve the industrial unrest. Similarly, if the aim is to attain rapid growth the emphasis will be on productivity growth and workers will be given more incentive to increase productivity rather than profitability.

(4) Interaction between Political-Legal Environment and Economic Environment: Political-Legal Environment and economic environment have a direct relationship. In a situation of political stability business will flourish and prosper and new enterprises     w ill be forthcoming. In a stable environment, business firms are willing to invest more and take more risks. However, if there is political instability, business definitely suffers. In uncertainty firms will not like to take-up new projects, money market investments shrink, and profits dwindle. The political party in power decides the pattern of economic legislation and state of economic environment decides the continuity or discontinuity of a particular political rule. The political ideology also changes with time for example during 1970s when congress party was in power in centre they followed a path of socialism under the leadership of Indira Gandhi . However, when in 1991 Narsinharao became the Prime Minister they introduced liberalisation, privatisation, and globalisation and followed the path of market economy. All the existing rules were changed accordingly with the change in ideology of the party.

(5) Educational- Cultural Environment: The economic environment also interacts with cultural factors. In India, traditions, customs, social values have largely moulded the attitudes and beliefs of the people. Family traditions, which are mostly non-economic, play an important part in shaping the institutions. Management is in the hands of traditional heads of the family. The scenario is now changing with the spread of education. People are receiving costly management education from business schools of repute and this phenomenon is changing the traditional social values and culture. Thus, the system of education may be responsible for the current economic environment. The traditional thinking such as simple living and high thinking is changing in favour of materialistic view of high consumption.

From the foregoing discussion, we have noted that environment and business are inter-related. The environment is a complex phenomenon. The term consists of several subsets e.g. economic, social, cultural, political, legal, and technological. The business environment varies from country to country and from time to time. The environment consists of all economic institutions, the structure of economic system, government policies and plans. Business is also influential in shaping the total environment in which it works. Thus, there is a relationship of ‘give and take’ manner. To conclude, we say business and environment are mutually dependent and that they interact actively.