BUSINESS ENVIRONMENT

Literally ENVIRONMENT means 'Surroundings', the area outside or external forces. This business environment is the external things or forces that affect directly or indirectly the performance of a business. It refers to all those forces ( economical, social, political, technical etc) and institutions ( suppliers, competitors, customers etc) which are external to a business and beyond its control.

The environment provides both constraints and opportunities to the business. Constraints are economic conditions, customs, government regulations, availability of natural resources, labour supply etc. They are the limitations in front of the business. On the other hand environment also offers a number of opportunities to the business in the form of changing needs of the customers and markets. So it is essential to forecast environmental conditions prior to establishing goals or strategic planning.

Business environment can be classified in to  two major categories:
1) Economic Environment
2) Non Economic Environment

Economic environment consists of factors like the fiscal policy, the monetary policy, the industrial policy, nature of economic system, the place of the economic development etc. Non- economic environment refers to social, cultural, political,  legal, technological factors etc. ( Discuss later)

IMPORTANCE OF BUSINESS ENVIRONMENT

Understanding the environment and adapt things accordingly is important to a business due to the following reasons:

1. First Mover Advantage:
Knowing of environment helps an organisation to capitalize the opportunities rather than loose these to competitors. A successful firm is  one which highly concentrates on its environment. Receiving early information from environment and react immediately  on  that basis  helps  an organization to enjoy the first mover advantage by pushing back all other firms far behind.

2. Warning Signal:
Environmental information provides warning signal to the business. It helps to plan the future course of the  business  well  in  advance  and fixing objectives.

3. Sensitise the Management:
Understanding of environment helps management to respond quickly to the changing  needs  and  tastes  of  customers.  Those  firms  which sensitise to the environmental changes can face the new situation without any problems.

4. Basis of Strategy:
Environment awareness helps every organisation to develop strategies to utilise opportunities offered by the environment. Those firms which are developing strategies without environment analysis may become a complete failure.

5. Sources of Intellectual Stimulation:
Awareness of environment through scanning help in stimulating planners in their decision making. So they plan by giving attention to people and lead them in their activities.  They eliminate complexities and gives a new face to  leadership  in  a  manner  to  accept  changes  as  per environment scanning. They use delegation of authority which enables people to cope with changing environment.

6. Image Building:
Environmental scanning helps the management to improve the goodwill of their enterprise.  Updating  the  organisations  image  among  the customers is essential to stay in the  market.  For image   building, it  is  essential  to  analyse  the  environment  and  act  sensitively  to  it.

7. Continuous Learning:
Environment scanning provides a continuous and broad - based education to the executives, especially strategic planners. Such  a  learning gives complete freedom to its planners to react to its environment because delay in action may result in a negative way.

ENVIRONMENT SCANNING

Environment scanning means monitoring the environment of each business organization and identifying the constraints and opportunities before them. It helps to ascertain the impact of different events, issues, trends and expectations on its strategic management process.

DIMENSIONS
The environment of an organization can be generally divided in to three, as follows:
1). General Environment
2). Operating Environment
3). Internal Environment.

Under the topic ' Dimension of Business Environment' we concentrate only on General Environment. The components of general environment are discussed below, which are least controlled and influenced by the management of the organization:
1. Economic Environment
2. Social Environment
3. Legal Environment
4. Technological Environment

1. Economic  Environment:
Economic environment has stronger influences over the organization's policies and actions. It consists of gross national product, corporate profit, inflation rate, productivity, employment rates, balance of  payments,  interest  rates,  tax  rates  and  consumer  income,  debit  and spending.
Example: New banking reforms in India makes a great change in the field of banking. As a result many new  and attractive  deposit  schemes and advancing loans on easier terms and made possible.
New economic policy led to many developments in the field of lease financing, mutual funds and entry of banking institutions in stock trading etc.

2.Social  Environment:
Social environment describes the nature of the society in which the organization exists. Literacy rate, educational levels, customs,  beliefs, values, lifestyle, age, demographic distribution and  mobility of population are the part of social environment. A change in the attitude  of  a society may make changes in the policies and actions of the business organization. Otherwise its existence will be in danger.
Example: The attitude of people  towards  food  and  clothing  has  changed.  This  results  in  the  growth  of  food  processing  and  garment manufacturing.

3.Political  Environment:
Social environment describes th







 
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