Business Environment

Topics: Economics, Marketing, Business Pages: 8 (1771 words) Published: November 25, 2010
1.0 Business Environment
1.1 Definition of Business Environment
The term Business Environment is composed of two words ‘Business’ and ‘Environment’. The word Business in its economic sense means human activities like production, extraction or purchase or sales of goods that are performed for earning profits. The word ‘Environment’ refers to the aspects of surroundings.

Therefore, Quick MBA (Knowledge to Power Your Business) give the definition of Business Environment is a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business.

Also, Business Environment may be defined as a set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of organization. Business Environment has two components: 1. Internal Environment

2. External Environment

1.2 Components of Business Environment
1.2.1 Internal Environment
It includes 5 Ms, which is man, material, money, machinery and management, usually within the control of business. Business can make changes in these factors according to the change in the functioning of enterprise. This environment is related with the strength and weakness of the business firm. The effectiveness of the business running is depending on the manager and the factor of production of the company.

1.2.2 External Environment
Those factors which are beyond the control of business enterprise are included in external environment. These factors are: Government and Legal factors, Geo-Physical Factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors.

It is of two Types of external environment:

• Micro/Operating Environment: The environment which is close to business and affects its capacity to work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public.

• Macro/General Environment:  It includes factors that create opportunities and threats to business units.

1.3 PEST Analysis
A PEST analysis is an analysis of the external macro-environment that affects all the firms. PEST factor is external factors that beyond the firm’s control sometimes present for threats or opportunities. Today's world is a rapidly changing place. Developments across a range of factors will have an impact on your business or industry. The classic PEST framework (political, economic, social, and technological) identifies four major categories of external factors that affect the ability of your organization to survive and prosper.

1.3.1 Politic Factor

Politic factor include government regulations and legal issue and defined both formal and informal rules under which the firm must operate. Example includes

• Tax policy

• Employment laws

• Environmental regulation

• Trade restrictions and tariffs

• Political stability

1.3.2 Economic Factor

Economic factor affect the purchasing power of the potential customer and the firm’s cost of capital. The following are the examples of the factors in the macroeconomy:

• Economic growth

• Interest rate

• Exchange rates

• Inflation rate

1.3.3 Social Factors

Social factor include the demographic and cultural aspect of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:

• Health consciousness

• Population growth rate

• Age distribution

• Career attitudes

• Emphasis on safety

1.3.4 Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels and influences...
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