Business Environment

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MODULE -3 Business Around Us


nderstanding the environment within which the business has to operate is very important for running a business unit successfully at any place. Because, the environmental factors influence almost every aspect of business, be it its nature, its location, the prices of products, the distribution system, or the personnel policies. Hence it is important to learn about the various components of the business environment, which consists of the economic aspect, the socio-cultural aspects, the political framework, the legal aspects and the technological aspects etc. In this chapter, we shall learn about the concept of business environment, its nature and significance and the various components of the environment. In addition, we shall also acquaint ourselves with the concept of social responsibility of business and business ethics.


After studying this lesson, you will be able to: • • • • • • • explain the meaning of business environment; identify the features of business environment; describe the importance and types of business environment; describe the recent developments in Indian Economy that have greatly influenced the working of business units in India; explain the concept of social responsibility of business; state the social responsibility of business towards different interest groups; and explain the concept of business ethics.

As stated earlier, the success of every business depends on adapting itself to the environment within which it functions. For example, when there is a change in the government polices, Business Studies


MODULE -3 Business Around Us


the business has to make the necessary changes to adapt itself to the new policies. Similarly, a change in the technology may render the existing products obsolete, as we have seen that the introduction of computer has replaced the typewriters; the colour television has made the black and white television out of fashion. Again a change in the fashion or customers’ taste may shift the demand in the market for a particular product, e.g., the demand for jeans reduced the sale of other traditional wear. All these aspects are external factors that are beyond the control of the business. So the business units must have to adapt themselves to these changes in order to survive and succeed in business. Hence, it is very necessary to have a clear understanding of the concept of business environment and the nature of its various components. The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc. While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of business. It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm. Social factors Economic Factors

Political Factors Business Decisions
Legal Factors

Technological Factors

Demographic Factors

On the basis of the above discussion the features of business environment can be summarised as follows. (a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning. (b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions. 54

Senior Secondary

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