Business Environment and its Dimensions

Business environment is the sum total of all individuals or institutions or other factors that are outside the control of a business enterprise, but which may influence the performance of the enterprise. Business environment deals with various features like totality of external forces, specific and general forces, inter-relatedness, dynamic nature, etc. A good understanding of business environment enables managers to identify and evaluate as well as react to the forces external to their firms and it is important as it:
•    provides first mover advantage,
•    gives early warning signals,
•    assists in planning and policy formulation,
•    facilitates tapping of useful resources,
•    helps in coping with rapid changes and
•    helps in improving performance.
Dimension of business environment is classified as:
•    Micro environment refers to those internal and external factors which exercise a direct influence on the working and performance of an individual business firm and also known as direct section environment or task environment.
⇒    Internal factors consists of corporate culture, mission & objectives, top management structure, etc and other resources.
⇒    External factor consists of customers, competitors, suppliers, marketing intermediaries, financiers and public.
•    Macro environment refers to general/remote environment with in which the business firm and other forces in the micro environment operate. Forces in macro environment create opportunities for and/or may pose threats to a business firm. These include components like economic environment, social, political, technological and legal environment.

 

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  • Q1

    Business environment helps in identifying opportunities and getting the first mover advantage’. Explain with an example

    Marks:2
    Answer:

    Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example – Maruti Udyog became the leader in the small car market because it was the first to recognise the need of small cars in an environment of rising petroleum prices and a large middle class population.

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  • Q2

    Give any two examples of the impact of changes in social environment on business organisations.

    Marks:2
    Answer:

    Two examples of the impact of changes in social environment on business are:
    i. Increase in demand for home appliances due to rise in disposable income.
    ii. Increase in opportunities for greeting card companies, confectioners, boutiques, etc. at the time of Indian festivals.

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  • Q3

    What are the specific and general forces in a business environment?

    Marks:2
    Answer:

    Specific forces are those forces in a business environment which directly affect an individual business enterprise and comprise of investors, customers, competitors, suppliers, etc.

    General forces are those forces in a business environment which indirectly affect all business enterprises and comprise of social, political, legal, technological conditions, etc.

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  • Q4

    How is business affected by its technological environment?

    Marks:2
    Answer:

    The technological environment of business comprises of forces relating to scientific improvements and innovations in business which provide new ways of producing goods & services and new methods & techniques of operating a business. It also includes facilities for research & development and access to foreign technology, available to business.

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  • Q5

    Why is business environment considered to be complex?

    Marks:1
    Answer:

    Business environment is considered to be ‘complex’ since it comprises of numerous interrelated and dynamic forces which makes the understanding of environment difficult.

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