Environmental Factors in Business

Topics: Five-Year Plans of China, Five-year plan, Economic planning Pages: 28 (5035 words) Published: June 26, 2012
Business Environment
BBA 1st year – 2012-13


Business environment includes the ‘climate’ or set of conditions: economic, social, political or institutional which have a direct or indirect bearing on the functioning of business It signifies external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.


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 conditions The changes in business environment are unpredictable

Business Environment differs from place to place, region to region and country to country

Business environment is complicated and active in nature and has a far-reaching impact on the survival and growth of the business.      

Determining Opportunities and Threats Giving Direction for Growth Continuous Learning Image Building Meeting Competition Identifying Firm’s Strength and Weakness: Business environment helps to identify

Types of environment

Internal environment

External environment

Micro environment

Macro environment

Internal Environment

The internal environment is the environment that has a direct impact on the 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: 

Value system The value system of founders and those at the helm of affairs has important bearing on the choice of business, the mission and objectives of the organization, business policies and practices.  Vision, Mission and Objectives The business domain of the company , priorities , direction of development, business philosophy, business policy etc. are guided by the mission and objectives of the company

Internal Environment

Management structure and nature The organizational structure, the composition of the Board of Directors, extent of professionalization of management etc. are important factors influencing business decisions Internal power relationship Factors like the amount of support the top management enjoys from lower levels and workers, share holders and Board of Directors have important influence on the decisions and their implementation. The relationship between the members of Board of Directors is also a critical factor Human resources The characteristics of the human resources like skill, quality, morale, commitment, attitudes etc. could contribute to the strength and weakness of the organization. The involvement, initiative etc. of the people at different levels may vary from organization to organization Company image The image of the company matters while raising finance, forming joint ventures or other alliances, soliciting market intermediaries, entering purchase or sale contracts , launching new products etc.

External Environment

Micro environment consists of the actors in the company’s immediate environment that affect the performance of the company. They are more intimately linked with the company Macro environment consists of larger societal forces that affect all the actors in the company’s micro environment.

Micro Environment

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Those who supply the inputs to the company. Source/Sources should be Reliable Uncertainty regarding the supply or other supply constraints compel companies to maintain high inventories causing cost increases. Very risky to depend on a single supplier The purchasing department should “market” itself to suppliers, to obtain favourable treatment during the periods of shortages.

Micro Environment

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Major task of business is to create and sustain...
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