Business Environment

Concept of Business Environment

The sum total of all factors and forces that affect and influence the operation of a business is called business environment. It is a surrounding where the business organization exists. Business starts, operate and die in an environment. Business environment either provide opportunities or threat.

According to S.P Robbins, "Environment refers to the institution or forces that affect business performance”

According to Keith Davis, "Business environment refers to institutions or forces that affect the organization's performance.

Business is surrounded by many factors like employees, political, technological, suppliers, customers etc. A business institution gets the input from the environment and transfers them into the output to supply again in an environment. When the environment in the business is supportive it will be a reason for success. In another case, it will import the threat to business.

In conclusion, business environment refers to the aggregate of all the factor which influences the business operation. It is composed of an internal and external environment. The internal environment is controlled by business whereas externally is not controllable by business.

Components of Business Environment

The business environment is broadly categorized into two type that is an internal and external environment.

Internal Environment

The sum total of all factor and process that are inside the business and affects the operation of a business is called internal environment. The environmental factors such as employee, organization structure, corporate culture, employees, union etc. compose the internal environment. Internal environment makes the organization stronger or weak if they are supportive and against the business respectively. Internal environment factors are controllable and can manage by business. The elements of internal environment are as follows:

1. Employee
2. Organizational Structure
3. Co-operativeCulture
4. Shareholders
5. Employee Union

1. Employee

They are the people who work in the organization for salary. They provide mental and physical ability when employees are talent, skilled and experience and this will make the business strong. In opposite case, the organization will be weak.

2. Organizational Structure:

The flow of communication and proper position relation in business is called organizational structure. It is a framework of an organization. The structure of the organization as well has the impact in operation of business. When the organization structure is simple and easy to understand it will help in the achievement of an objective.

3. Co-operative culture:

The norms, values, system and beliefs of the organization refer to the organization culture. The organizations that haveco-operativeculture help in achieving goal effectively. The non-cooperative and conflicting culture makes organization weak. Therefore, co-operative culture is an important internal environment to affect the business operation.

4. Shareholders:

They are the investor of business. They are the key people to elected board of directors. The experiences effective directors are available only when there are educated shareholders. Therefore, the e shareholders of the company are important internal environment factors.

5. Employees Union:

It is a preventive body of employees. It helps and solves the employee's problem, when employees union is stronger and against the business. It makes the organization weak. To becomesuccess, a business needs supportive employees union.

External Environment

The sum total of all the factor and forces that are outside the business and affects the operation of business is called external environment of business. The environmental factors like legal, political, technological, social, competitors, customers, suppliers etc. are the element of the external environment. As these factors are outside the business they can't be controlled by business. Business has to accept and adopt the external environment that will provide opportunities and the threat to business.

The external environment is broadly classified in the following ways:

1. General Environment
2. Specific/Task environment

1. General environment:

The environmental factor that belongs to external environment and business has long term effects with this. Some of the factors of general environment are as follows.

• Political/Legal Environment:

The number of political parties and their ideology represent the political environment. The legal environment like the legislature, executive, judiciary etc. has the impact in an operation of a business. A business must be proactive to know the changes in this environment and to adopt in this business because this environment is not the controllable factors.

• Economic Environment:

The Economic system determines the economic environment. The factors like level of income (per capita income), output of a country, a rate of influences etc. make economic environments. A business has the higher chance of growths expansion in a good economic environment.

• Socio-cultural environment:

It involves norms, values and beliefs of society. The culture of society provides the basis for accepting specific business and its product. A business has to accept and respect the social culture where it does exist. Therefore, social culture is the important external environment to determine business success or failure.

• Technological Environment:

The method and forces of converting raw materials into output largely depend upon the level of technology. The application of modernized technology in business operation will help in the achievement of objectives efficiently and effectively. The technological factors like new methods of production, new communication tools and modernized equipment are the key factors for business success. Therefore, a business has to consider the technological environment.

2. Task/Specific Environment:

The environmental factors which are outside the business and are not controllable but can be manage are called task specific environment. The effects in task environment in business can be seen directly in the general environment. The task environment is composed of the following factors:

• Customers: They are the people who purchase product or service by paying money. A satisfied customer is an important element for business success. Therefore, a business must understand changing needs, interest and preference of a customer.

• Suppliers: They are the people and institution who provides resources and materials to business. To become success, an enterprise has to maintain the warm and healthy relationship with suppliers.

• Competitors: They are the business institution who provides similar kind of product or services. If the business doesn't give care about competitor’s activities, the business may lose its customers. Therefore, a manager must be careful regarding the activities of competitors.

• Government: It is a regulatory institution who provides laws and facilities for business control and growth. A business has to understand changing rules, regulation and laws of government regarding business because business cannot go against government rules.

• Pressure groups: The organization like customer rights association, social clubs, media clubs, environmental list etc. form pressure group for business. For any business, to become success, it has to maintain healthy relation with pressure groups.

• Financial Institution: It consists of commercial and development bank, finance, companies, insurance etc. These institutions provide loan facilities to business in case of money shortage. Therefore, a business has to maintain good relation with financial Institution.

References:

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal.Business Studies.Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al.Business Studies.Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.