Now we are going to discuss about concept of business environment. Business environment usually refers to the external factors and forces which are outside the control of the firm and vary from country to country. In this way, all external factors may have influence on the functioning of the business.
The external environment such as economic, socio-cultural, political, technological, ecological, legal and regulatory, etc. in which business operates gives various kinds of opportunities to the business or may pose threats or challenges to the business. On the other hand, the internal environment in terms of its physical or psychological resources helps the management to cope and adapt to the external environment. Thus, we can say that survival of business depends on both external and internal factors.
Business Environment can also be classified as economic and non-economic environment. The economic environment consists of factors like the fiscal policy, the monetary policy, the industrial policy, the nature of economic system, the pace of economic development, etc. The non-economic factors include socio-cultural, politico-legal, technological and natural factors. The economic and non-economic factors can neither be separated nor identified exclusively. Both interact with each other and their treatment in and their treatment in isolation is neither feasible nor of any significance. The economic environment determines non-economic environment, and at the same time, non-economic environment determines economic environment.
Advantages of business environment are given below:
- Continuous environmental scanning helps in visualising impact of socio-economic and political-legal changes at the national and international level on its business and take timely corrective steps.
- It helps in identifying opportunities for, threats to, the business.
- It helps in identifying firm’s strength and weakness in view of the technological and global developments.
- It helps in evaluating present strategies, formulating long term policies and developing future strategies.
- Lastly, it helps the firm to adapt to the prevailing conditions and, sometimes, even influence the environment in order to make it favourable to the business.