Business Environment: Factors and Importance

Environment of Business DR. S. ARUNPRASAD ASST. PROFESSOR DEPARTMENT OF IT&M ARUL ANANDAR COLLEGE KARUMATHUR

Meaning Business Environment is sum or collection of all internal and external factors such as employees, customers needs and expectations, supply and demand, management, clients, suppliers, owners, activities by government, innovation in technology, social trends, market trends, economic changes, etc. These factors affect the function of the company and how a company works directly or indirectly. Sum of these factors influences the companies or business organizations environment and situation.

Need and Importance of Business Environment 1. Effective Management 2. Innovation 3. Long-Term Planning 4. Effective Decision 5. Success and Progress of Business 6. Survival of Firm 7. Coordination with Environment 8. Getting Resources

Factors affecting environment of business A.Internal factor Value System Vision, Mission and Objectives Organizational Structure Corporate Culture Human Resources:

External Environment 1.Customers: 2. Suppliers: 3.Competitors: 4. Public: 5.Market intermediaries:

Macro External Environment Economic Environment Important factors of Economic Environment Economic environment is one of the most crucial elements of the business environment. In India, the economic environment consists of various macro-level factors that are related to the production and distribution of the organization. These factors have an impact on the wealth of businesses and industries. Some of the important factors are as follows:

Stage of Economic Development: The stage of economic development of the country means the physical frame and framework environment. Economical Structure: The type of economic system determines the role of the public and private sectors in India. A mixed economic system operates where both public and private sectors exist, and India is an example of a mixed economy. Economic Planning: Economic planning gives direction to the changes in the economic environment. It includes five years plan, an annual budget, etc. Economic Policy: There are various important economic policies that influence the business decisions, such as monetary policies, fiscal policies, etc. Fluctuations and trends in Economic Indicator: The functioning of an economic indicator like national income, distribution of income, growth rate,

Political Environment Political factors can impact a business by making the market environment more or less friendly for that business. Typically, governments have a great deal of power over businesses and many times, there is not much that businesses can do about it. Political factors can impact businesses in various ways. These external environmental factors can add in a risk factor which can lead to a major loss in business. These factors can change the entire results and hence, companies should be able to deal with both local as well as international political outcomes.

There are certain factors that create inter-linkages in several ways like: Political decisions affect the socio-cultural environment of the country. Political decisions have an impact on the economic environment. Politicians can also influence the acceptance of new technologies. Politicians can also influence the rate of development of new technologies.

political factors affecting business: Bureaucracy Corruption level Freedom of the press Tariffs Trade control Education Law Anti-trust law

Employment law Discrimination law Data protection law Environmental Law Health and safety law Competition regulation Regulation and deregulation Tax policy (tax rates and incentives)

legal Environment legal Environment The Legal Environment of Business The business environment is based on a set of conditions, and those are social, legal, political, economic, and institutional conditions. All of them based on two different positions and those are internal and external events.

Internal environment: The internal environment usually includes manpower, capital, machinery, raw materials, and last but not least is management. Those are generally controlled by the business internally. If the governing body of the business wants to change the policies, they can change its function and go forward to develop its profitability. External environments: The external factors of a business firm are beyond the control of a certain enterprise. Governmental policies, tax, legal factors, political factors, social events, economic functions, and also geological factors are the main external factors of a business.

Characteristics of a legal environment of business:- The legal environment of business is always free from external and internal threats. More than 23 countries implement their transport oriented rules regarding these policies. Every wing of the business sector is connected without facing any haze. For this purpose, the proper communication between the inter-department is important. The nature of business is dynamic. If the Government rules and laws are frequently fluctuating, the business environment faces several problems regularly. The loss prevention policies such as insurance are very strong in the legal environment of business of a certain country. It is mandatory to adopt this regulation for at least 1 Cr or more than 5 Cr turnover businesses.

Cultural Environment The cultural environment consists of the influence of religious, family, educational, and social systems in the marketing system. Marketers who intend to market their products overseas may be very sensitive to foreign cultures.

Components of Cultural Environment . Nationality The values, history and beliefs of every country defines the cultural environment amongst the citizens of a country. 2. Religion Religious practices and beliefs defines various factors on how a business should operate and communicate as it must be accurate about religion as well as be careful of handling sensitive issues. 3. Language The preferred language or mother tongue of a region, town, city, state or country can define the cultural environment.

Region Regional factors like geography, terrain, climate etc. also creates a collective group or segment of people which marketing firms can address to. 5. Demographics Age, gender, marital status etc. also define cultures, beliefs and attitude of people. 6. Education Cultural environment is also classified and segmented based on education, social status, income levels etc.

6.Technology Environment 6.Technology Environment Advantages and disadvantages of using new technology for businesses New technology has a range of advantages and disadvantages for businesses and business stakeholders. It is important for businesses to assess the risk and make informed decisions about whether to use the latest technology.

Advantages of new technology include: easier, faster and more effective communication better, more efficient manufacturing techniques less wastage more efficient stock management and ordering systems the ability to develop new, innovative approaches more effective marketing and promotion new sales avenues