Meaning of Business Environment

Dimensions/components/Elements of business environment are the economic, social, technological, political and legal conditions that affect decision-making of an enterprise and constitute the general environment of the business .

  1. Economic Environment:

It includes economic factors affecting managerial decisions like Interest rates, inflation rates, disposable income of people, stock market indices , the value of rupee, demand for product and services.

For example, in case of construction companies and automobile manufacturers, low longer-term interest rates lead to increased spending by consumers for buying homes and cars on borrowed money.

Main Elements of Economic Environment:

  1. Economic structure of the country.
  2. The rates of growth of GNP and per capita income.
  3. Saving and investment.
  4. Imports and exports of different items.
  5. Balance of payments .
  6. Foreign exchange reserves.
  7. Agricultural and industrial production.
  8. Circulation of money in the economy.
  9. Public debt .

     2. Social Environment:

It includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc. affecting business.

Traditions are the social practices followed for decades / centuries.

For example, the celebration of Diwali, Id, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets and many other related business.

Values refer to concepts that a society holds in high esteem.

For example, In India, individual freedom, social justice, equality of opportunity and national integration are major values reflected in the form of freedom of choice in the market, business’s responsibility towards the society and non-discriminatory employment practices.

Social trends present various opportunities and threats to business enterprises.

For example, the health-and fitness trend has resulted in increased demand for products like organic food, diet soft drinks, gyms, mineral water and food supplements and affected demand for dairy products, tobacco and liquor.

Main Elements of Social Environment

  1. People attitudes.
  2. Concern with quality of life.
  3. Life expectancy.
  4. Expectations from the workforce.
  5. Presence of women on jobs.
  6. Birth and death rates.
  7. Population composition.
  8. Educational system and literacy rates.
  9. Consumption habits.
  10. Composition of family.

    3. Technological Environment:

It includes forces relating to scientific improvements and innovations .

For example, recent changes in advertising practices like CD-ROM’s, computerised information kiosks, and web pages highlighting the virtues of products, Airline companies having Web pages showing flight times, destinations and fares and booking of tickets online.

There are innovations in different scientific and engineering fields such as lasers, robotics, food preservatives, medicine etc. resulting in various opportunities and threats for many different enterprises.

  1. Political Environment:

It includes political conditions like general stability and peace in the country and specific attitudes that elected government representatives hold towards business.

The stable political conditions can help in predictability and confidence to make more investment in the long term projects for the growth of the economy whereas political instability can shake that confidence.

The attitudes of government officials towards business may have either positive or negative impact upon business.

Major Elements of  Political Environment:

  1. The Constitution of the country.
  2. Prevailing political system.
  3. Politicalisation of business and economic issues.
  4. Ideologies of major political parties.
  5. Political leaders and their thinking.
  6. Government intervention in business.
  7. Relationship of our country with foreign countries.

    5. Legal Environment:

It includes various legislation passed by the Government administrative orders issued by government authorities, court judgments and decisions by various commissions and agencies at every level of the government— centre, state or local.

It is compulsory for everyone to obey the law of the land. So, proper knowledge of legal rules and regulations is a pre-requisit for better business performance otherwise there can be legal problems.

In India, knowledge of following Acts is required along with some other provisions and amendments by the Parliament :

  1. Companies Act 2013;
  2. Industries (Development and Regulations) Act 1951;
  3. Foreign Exchange Management Act and the Imports and Exports (Control) Act 1947;
  4. Factories Act,1948;
  5. Trade Union Act; 1926;
  6. Workmen's Compensation Act, 1923;
  7. Industrial Disputes Act, 1947;
  8. Consumer Protection Act,2019;
  9. Competition Act, 2002.

The effect of legal provisions can be understood from the facts that the advertisement of alcoholic beverages is prohibited. Advertisements, including packets of cigarettes carry the statutory warning ‘Cigarette smoking is injurious to health’, advertisements of baby food must necessarily inform the potential buyer that mother's milk is the best.

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