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Importance of Business Environment


Business Environment

The business environment is the collection of factors like employees, clients, supply and demand, management, clients, suppliers, investors, and a lot more. Business Environment affects the working of a company.

The business environment helps to identify the goals, planning, execution, and internal working of a company. The business environment is an integral part of any organization.


Importance of Business Environment and Types

There are multiple factors by which we can decide the type of business organization. The factors include the brand value, size of the organization, quality of the work done by the company, etc. A business can be classified according to small-sized, medium-sized, and large organizations.


What is Business Environment?

Various forms of organization are available in a business environment. They are Sole Proprietorship, Partnership, Co-Operative Societies, Statutory Bodies, and Corporations.

Each form has a different company base, brand value, including the other properties. Sole Proprietorship companies are those where the company is owned by a sole person/family.

In partnership firms, two or more partners equally share the responsibilities of the company. They also have equal shares in the profit earned. Corporations are the ones where a huge number of employees work and have branches all over the region.


Importance of Business Environment in relativity

Business Environment is required for a company for the following reasons.

  • Helps to plan the investment accordingly.
  • Helps to strategize plans and opportunities.
  • Helps to identify estimated loss that might occur if corrective measures are not taken in time.
  • Helps to manage resources.
  • Helps to measure the productivity of an employee in a company.
  • Helps to establish intercommunications between the different teams of a company.

These are the reasons why a business environment is helpful.

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Relativity in Business Environment

An ideal business environment is the one through which the company flourishes and the employee’s productivity is maximized. It can be achieved by taking proper measures that can help to establish the communication between the employees and the management of a company.

Regular checks can also be done to ensure whether the environment is safe and sound for the employees or not. The client’s feedback also can be taken to improve the business environment.

There should also be regular interactions between the people of higher positions in the company and the regular employees. This can help to spread the motive of the company. This will help the employees to have a specific target along with a valid reason to work in the organization.


Business Environment: Features

Usually, management people are responsible to ensure the business environment in an organization. Also, the regular employees, clients, and the ones related to the company regularly are responsible for the proper functioning of a business environment.

(A) The totality of External Forces in Business Environment

  • The business environment includes everything which is outside the organization.
  • If we add all these forces and systems, they will form a business environment for the organization.

Example: When Coca-Cola & Pepsi got permission from Govt. of India to set up their business in India, it was an opportunity for them and a threat for local manufacturers like gold spot, camp-cola, etc to improve their business.

(B) Specific and General Forces in Business Environment

  • Specific forces are those forces that directly affect the operational activities of the business enterprise like manpower,raw material, etc.
  • Example: Suppliers, Customers, Investors, Competitors, Financers, etc.
  • General forces are those forces that indirectly affect the functioning of business enterprises.

Example: Economic, Social, Political, Legal, and Technological conditions of business.

(C) Inter-relatedness of systems in Business Environment

  • Different forces of the business environment are interrelated to each other.
  • In a Business Environment System, one component of the business environment affects the functioning of various other components.

Example:The increased life expectancy of people and awareness of health consciousness has increased the demand for many health products like diet coke, olive oil, organic products and so many health products.

(D) Dynamic Nature of Business Environment

The business environment is dynamic in nature and it keeps on changing in terms of many components :

(a) Technological improvement in Business Environment,

(b) Shifts in consumer preferences in the market,

(c) The entry of new competition of your feild in the market.

Example:Many established companies in FMCG (Fast Moving Consumer goods) sector are focusing on producing goods with natural ingredients with the entry of ‘Patanjali Products’ in the market.

(E) Uncertainty in Business Environment

  • The rapid changes in the business environment cannot be predicted accurately because of future uncertainties in the market.
  • It is very difficult task to predict the changes in the economic and social environment of the Business Environment.

Example: There has been a sharp decline in the prices of Android smartphones due to the entry of many new companies in the market.

(F) Complexity in Business Environment

  • All forces of the Business environment are interrelated and dynamic, which makes it difficult to understand for newer onces.
  • The complex nature of the Business environment can be understood if we study it in parts.

(G) Relativity in Business Environment

  • Business Environment differs from place to place, region to region, and country to country.

Example: In China and South Korea, the electricity to the industry is provided at cheaper rates as the consumption increases, and hence, it leads to mass production whereas, in India, it is otherwise, higher consumption of electricity leads to costly electricity to industies which results in lower production & higher cost of production in India.


FAQ’s on Importance of Business Environment

On what factors does an external environment of a business depend?

An external environment depends upon the demographic, geographic, and economic factors of a business.

Is it necessary to have a business environment?

Yes, it is necessary to have a business environment in a company.

Does the business environment help internal growth in the organization?

Yes, the business environment promotes internal growth in an organization.

What is the microenvironment?

The microenvironment is the factors that directly affect the working of a company like the sales, demand and the number of customers.

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