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


    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.


    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?


    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?


    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?


    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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