Businessenvironment includesthe‘climate’ or set of
conditions: economic, social, political or institutional
which haveadirect or indirect bearing on thefunctioning
It signifiesexternal forces, factorsand institutionsthat are
beyond thecontrol of thebusinessand they affect the
functioning of abusinessenterprise.
Business environment is the sum total of all factors internal &
external to the business firm that greatly influence their functioning
It covers factors and forces like customers, competitors, suppliers,
government, and the social, cultural, political, technological and legal
The changes in business environment are unpredictable.
Business Environment differs from place to place, region to region
and country to country. Ex: Political conditions in India differ from
those in Pakistan. Taste and values cherished by people in India
and China vary considerably.
Business environment is complicated and active in nature and
has a far-reaching impact on the survival and growth of the
Determining Opportunities and Threats
Giving Direction for Growth
Identifying Firm’s Strength and Weakness: Business
environment helps to identify
Types of environment
Internal environmentInternal environment External environmentExternal environment
Micro environmentMicro environment Macro environmentMacro environment
ENVIRONMENT OF BUSINESS
Important internal factors which have a
bearing on the decisions of a business
firm and which are generally
controllable because the company has
control over these factors:
Vision, mission and objectives
Management structureand nature
Internal power relationship
The internal environment is the environment that has
a direct impact on the business.
Ranbaxy’s mission: “ to become a research based
international pharmaceutical company”- has driven it
to enter the foreign markets and
Thus the business domain of the
company, priorities, direction of
development, business philosophy,
business policy etc,
are guided by the vision, mission
Organizational structure, composition of board of
directors, extent of professionalisation of
management sometime delay decision making while
some others facilitate quick decision making.
Board of directors is the highest decision making
body and it overseas performance of the organization
and so its quality is very important.
The share holding pattern can also have important
The amount of support the top management
enjoys from different levels of employees,
shareholders and board of directors have
important influence on the decisions and
For example: relationship between the
members of the board of director and
The characteristics of human resources
like skill, quality, morale, commitment, attitude
etc. could contribute to the strength and
weakness of an organization
Ex: Some organizations find it difficult to
carry out restructuring or modernization
because of resistance by employees whereas
they are smoothly done in some others.
While raising finance, forming joint
ventures or other alliances, soliciting
marketing intermediaries, entering purchase
or sale contracts, launching new products etc.
the image of the company matters the most.
Micro environment consistsof theactorsin the
company’simmediateenvironment that affect the
performanceof thecompany. They aremoreintimately
linked with thecompany.
Macro environment consistsof larger societal forces
that affect all theactorsin thecompany’smicro
An important forcein themicro environment of a
company isthesuppliers, i.e., those
who supply theinputslikeraw materialsand
componentsto thecompany. Theimportanceof
reliablesource/sourcesof supply to thesmooth
functioning of thebusinessisobvious.
Themajor task of abusinessisto createand sustain
customers. A businessexists
only becauseof itscustomers. Thechoiceof customer
segmentsshould bemadeby considering anumber of
stability of demand, growth prospectsand theextent of
Thebusinessfirm should not bedependent on asingle
Competition not only include the other
firms that produce same product but
also those firms which compete for
the income of the consumers the
competition here among these
products may be said as desire
competition as the primary task here
is to fulfill the desire of the customers.
The marketing intermediaries include
middlemen such as agents and
merchants that help the company find
customers or close sales with them.
The marketing intermediaries are vital
links between the company and the
final consumers .
The financiers are also important factors of internal
environment. Along with financing
capabilities of the company their policies and
strategies, attitudes towards risk , ability to
provide non-financial assistance etc. are very
A public is any group that has an actual or
potential interest in or impact on an
organization’s ability to achieve its interests. Ex-
media, citizens, local public etc.
NGOs have been protesting against child
labour, cruelty against animals, environmental
problems, deindustrialization resulting from
Economic environment refers to the
aggregate of the nature of economic system
of the country, business cycles, the socio-
economic infrastructure etc.
The successful businessman visualizes the
external factors affecting the business,
anticipating prospective market situations and
makes suitable to get the maximum with
It includes factors such as characteristics and
policies of the political parties, nature of
Constitution and government system relating
to business policies and regulations.
Important economic policies such as industrial
policy, policy towards foreign capital and
technology, fiscal policy and foreign trade
policy are often political decisions.
Thebusinessin acountry isgreatly influenced by the
Thetechnology adopted by theindustriesdetermines
thetypeand quality of goodsand
servicesto beproduced and thetypeand quality of plant
and equipment to beused.
Technological environment influencesthebusinessin
termsof investment in technology,consistent
application of technology and theeffectsof technology
Thesocial dimension or environment of anation
determinesthevaluesystem of thesociety which, in turn
affectsthefunctioning of thebusiness.
Sociological factorssuch ascostsstructure, customsand
conventions, mobility of labour etc. havefarreaching
impact on thebusiness. Thesefactorsdeterminethework
cultureand mobility of labour, work groupsetc.
The global environment refers to those factors which
are relevant to business such as:
WTO principles and agreements
Treaties, agreements, declarations, protocols,
Sentiments in other countries, hike in crude oil prices