BUSINESS ENVIRONMENT

The word Business Environment is a combination of the words Business +Environment. Let us discuss the meaning of business and Environment. Meaning of business: Business includes all activities connected with production, trade, banking, insurance, finance, agency, advertising, packaging, and numerous other related activities.

According to Musselman and Hughes, Business represents the organized efforts of enterprise to supply consumers with goods and services.Business may be understood as the organized efforts of enterprise to supply consumers with goods and services and to make profit in the process. Meaning of environment: Environment refers to all external forces which have a bearing on the functioning of business: : 10/21/2010 3 According to Musselman and Hughes, Business represents the organized efforts of enterprise to supply consumers with goods and services.Business may be understood as the organized efforts of enterprise to supply consumers with goods and services and to make profit in the process.Meaning of environment: Environment refers to all external forces which have a bearing on the functioning of business:

William F. Glueck and Lawrence R. 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 socio-economic, technological, supplier, competitors, and government. Meaning and definition of business environment As the environmental factors are beyond the control of a firm, its success will depend to a very large extent on its adaptability to the environment, i.e., its ability to properly design and adjust internal (the controllable) variables to take advantage of the opportunities and to combat the threats in the environment.

Economists have defined business environment in different ways: Reinecke & schoell, The environment of business consists of all those external things to which it is exposed and by which it may be influenced, directly or indirectly. Arthur M. Weimer, Business environment is the climate or set of conditions-economic, social, political or institutional in which business operations are conducted.

It is clear from the above definitions that business environment encompasses all conditions, circumstances and influences surrounding which affecting the development of an organization or an enterprise. These influences can be both external and internal to a business unit or any other organization.

Relationship between Business and environment

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Nature of business environment (1.)Internal and External Environment: Every business enterprise is surrounded with internal and external environment. (2.)Dynamic Factor: The business environment is the product of various dynamic factor, i.e., economic, social, political, geographical, religious and technological. cont.

(3.)Resources: The business enterprise gets its resources such as raw material, capital etc. from the external environment. (4.)Inter-dependence: There is a relationship among the environmental factors. Business is influenced by its environment and in turn, to a certain degree, it will influence the external forces. (5.)Communication: Every business enterprise exchanges the information with other enterprises regarding external environment. It helps the firm in policy making. cont.

(6.)Wide Market: The environment is a wide market for the firm. The goods and services produced by the firm are sold to the consumers in the society that is its external environment. (7.)Creation of Utility by Change in Form: The resources provided by the external environment to the firm are returned by the firm to the society by making them useful through creating utility. (8.)Fulfil Needs: External environment (society) expects from the firm to fulfill its needs. The firm which cannot fulfill the requirements of the society cannot survive for a long period. cont.

(9.)Uncertainity: The success of the firm depends on its ability to take advantage of the opportunities and to combat the threats in the environment. (10.)Change according to Changes: For the success of the firm it is essential that it will change itself according to the changes taking place in the environment. (11.)Responsible for All Factors: The firm should take decision by safeguarding interests of the various groups in the environment. cont.

(12.)Effect of Uncontrollable Factors: External factors are uncontrollable and they affect firms operations to a large extent. The main uncontrollable factors are government policies, legal provisions, research and development, technology, social conditions, political conditions, external relations and pressures etc. (13.)To Identify Major Changes: It is the responsibility of the firm to identify major changes taking place in the environment and adjust itself accordingly.

Need and Importance of Business Environment (1.)Firm to Identify Opportunities and Getting The First Mover Advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India cont.

(2.)Firm to Identify Threats and Early Warning Signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can meet the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on. (3.)Coping With Rapid Changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action cont.

(4.)Improving Performance: The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period. (5.)Basis of strategy: Strategists can gather qualitative information regarding business environment and utilizing them in formulating effective plants. (6.)Intellectual stimulation: Knowledge of environment changes provides intellectual stimulation to planners and decision-making authorities. cont.

(7.)Image building: Environmental understanding by the management builds image of the company in the minds of the people. They feel that the company is sensitive and responsive to their needs and problems. (8.)Activating management to changing needs: The knowledge of environmental changes sensitizes the management to make strategy to cope with the emerging problems.

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