What is Business Environment ? | Meaning and Features

What is Business Environment?

The word environment is derived from the French word ‘environ’, which means surrounding, i.e., external conditions involving manifold variables like objects or conditions affecting the development and growth of all living organisms, including human beings. There is close and continuous interaction between a business and its environment, and to sustain the business, a proper understanding of the environment is a must. 

Business Environment means the total of all individuals, institutions, and other forces that are outside the control of a business enterprise, but that may affect its performance. In other words, the business environment can be defined as all those conditions and forces under which a business is operated. These forces affect the working of the business, and it has to deal effectively with them. It encompasses the climate or the set of conditions: economic, social, political, or institutional, in which business operations are conducted.

Features of Business Environment

The features of Business Environment are as follows:

1. Totality of external forces:

The business environment is the total of all the external forces that directly or indirectly influences the working of a business system. The external forces refer to those individuals and groups, also known as stakeholders, with which a particular organization comes into direct and frequent contact in the course of its functioning. 

2. Specific and General Forces:

The business environment is made up of both specific and general forces. Specific forces such as investors, customers, competitors, and suppliers affect individual enterprises directly and immediately in their everyday work. General forces such as social, political, legal, and technological conditions indirectly affect the business environment.

3. Inter Relatedness:

The various elements of the business environment are closely interrelated, which means a change in one element affects the other elements of the business environment. In the present social environment, there has been a health-conscious and fitness trend amongst people, and demand for some product and services have increased, like low-fat cooking oil, low-fat milk, sugarfree products, yoga centers, health restoration, etc., at the same time demand for spicy and oily foods, etc., has decreased to an extent. These health products have changed the lifestyle of people, and also because of the rise in the number of working women in nuclear families, certain setups in India have led to the introduction of semi-cooked or processed food facilities.

4. Dynamic Nature:

The business environment is dynamic in nature, i.e. it keeps on changing whether in terms of technological improvement, a shift in consumer preferences or entry of new competition in the market. For example, changes like invention of new techniques of production, changes in industrial policies, or a new minister in the government, etc. Business is required to remain highly alert and adaptable so that they can survive for long period.

5. Uncertainty:

It is very difficult to predict the happenings in the future, especially when frequent changes are taking place in the environment. As in the case of IT or fashion designing due to technological advancements, smartphones have mostly replaced ordinary cell phones, or earlier women in India used traditional attire only, but in recent times most of them prefer western outfits.

6. Complexity:

Business environment consists of numerous interrelated and dynamic forces which arise from different sources. So, it becomes difficult to understand what exactly constitutes a given environment. The environment is a complex phenomenon that is relatively easier to understand in parts, but difficult to know the relative influence on the functioning of the business enterprise.

7. Relativity:

Business environment is a relative concept because it differs from country to country or from one organization to another. For example, demand for traditional wear may be high in India, but it is not static in Japan, or a shift of a preference from soft drinks to juice will be welcomed as an opportunity by the juice company, while the soft drinks company takes it as a threat.

Importance of Business Environment: Business environment is important because of various reasons. It helps in coping with rapid changes, tapping useful resources, building corporate image, etc.  

Dimensions of Business Environment: The different dimensions of business environment include Economic Environment, Social Environment, Technological Environment, Political Environment, and Legal Environment.