- Business environment means all external factors that affect a business but are outside its control.
- It includes economic, social, political and technological forces operating outside the business.
- Consumers, competitors, government, courts and media are also part of the business environment.
- Changes in government policies, taxes and political conditions directly affect business performance.
- Technological changes, changing customer tastes and increasing competition influence demand, costs and profits.
Definitions [2]
Definition: Business Environment
- Bayard O. Wheeler:
“The total of all things external to a firm and industries that affect its organization and operations is called the Business Environment.” - William F. Glueck:
“Business Environment is the process by which strategists monitor economic, governmental, market, supplier, technological, geographic, and social settings to determine opportunities and threats to the firm.” - Barry M. Richman & Melvyn Copen:
“Environmental factors or constraints are largely, if not entirely, external and beyond the control of individual enterprises.”
What is meant by ‘liberalisation’?
Liberalisation refers to reduced government controls and restrictions, such as licences and quotas.
Liberalisation means removing unwanted government controls and restrictions on trade and industry, allowing the private sector to enter sectors formerly reserved for the public sector and relaxing rules (tax, labour, foreign‑exchange, tariffs, and capital controls).
Formulae [1]
Introduction
The business environment includes all external factors, such as customers, competitors, new technology, government regulations, and social changes, that influence how a company operates. Understanding these factors helps businesses grow, adapt, and succeed.
Key Points
Key Points: Concept of Business Environment
Key Points: Major Elements of the Political Environment
- Lifestyle and Consumer Preferences – Changes in attitudes, lifestyles, and buying habits affect business demand.
- Quality of Life and Life Expectancy – Increasing concern for better living standards creates new market opportunities.
- Workforce Changes – Expectations from jobs and increasing participation of women influence business policies.
- Population Changes – Birth rate, death rate, and population shifts affect market size and labour supply.
- Education and Family Structure – Literacy rates, education level, and family composition influence consumption patterns.
Key Points: Major Elements of the Political Environment
- Political System – Type and stability of government affect business.
- Government Ideology – Ruling party’s ideas influence economic policies.
- Political Leadership – Leaders’ thinking and honesty impact business environment.
- Government Intervention – Level of control or support affects operations.
- Foreign Relations – Relations with other countries affect trade and business.
Key Points: Economic Environment in India
- Economic Environment – Includes development stage, policies, planning, and infrastructure affecting business.
- Post-Independence Situation – India was mainly agricultural with low productivity and high poverty.
- Planning Objectives – Growth, self-reliance, reduce poverty and inequality.
- Public vs Private Role – Public sector led key industries; private sector worked under government control.
- 1991 Reforms (LPG) – Liberalisation, Privatisation, and Globalisation to boost industrial growth.
Key Points: Liberalisation
- End of Licence Raj – Removed unnecessary licences and government controls on industries.
- Freedom of Business Expansion – Firms can expand or reduce their operations freely.
- Free Movement of Goods – Removed restrictions on the movement of goods and services.
- Price and Tax Freedom – Businesses can fix prices freely and tax rates were reduced.
- Encouragement to Foreign Investment – Simplified imports/exports and promoted foreign capital and technology.
Key Points: Privatisation
- Meaning – Giving a greater role to the private sector and reducing the role of the public sector.
- New Industrial Policy 1991 – Redefined the role of the public sector in the economy.
- Disinvestment – Government sold part of its share in public sector enterprises to private sector.
- Transfer of Ownership – If the government share falls below 51%, control shifts to the private sector.
- Handling Sick Units – Loss-making public enterprises were referred to BIFR for revival or closure.
Key Points: Globalisation
- Meaning – Integration of Indian economy with the world economy.
- Import Liberalisation – Removed licensing, tariff, and quantitative restrictions on imports.
- Export Promotion – Encouraged exports by reducing tariffs and reforming foreign exchange policies.
- Global Interaction – Increased interaction and interdependence among countries.
- 1991 Reforms – India adopted globalisation through liberal trade policies and technological advancement.
Key Points: Demonetisation
- Demonetisation (2016) – ₹500 and ₹1000 notes were made invalid.
- Main Aim – To control black money, corruption, and fake currency.
- Bank Deposits Increased – More money was deposited in banks.
- Digital Payments Promoted – Encouraged a cash-less economy.
- Economic Impact – Tax collection increased; cash use and real estate prices declined.
Key Points: Impact of Demonetisation
| S. No. | Area | Impact |
|---|---|---|
| 1. | Money/Interest Rates | (i) Decline in cash transactions (ii) Bank deposits increased (iii) Increase in financial savings |
| 2. | Private Wealth | Declined as some demonetised notes were not returned and real estate prices fell |
| 3. | Public Sector Wealth | No effect |
| 4. | Digitisation | Digital transactions among new users (RuPay/AEPS) increased |
| 5. | Real Estate | Prices declined |
| 6. | Tax Collection | Increase in income tax collection due to higher disclosure |
Key Points: Features of Business Environment
- Totality of External Forces – It includes all outside factors affecting business.
- Specific and General Forces – Some forces affect directly; others affect indirectly.
- Interrelatedness – All environmental factors are connected.
- Dynamic Nature – It keeps changing over time.
- Uncertainty – Future changes are hard to predict.
- Complexity – It has many interrelated factors.
- Relativity – It differs from country to country.
Key Points: Importance of Business Environment
- Identifies Opportunities – Helps firms find and use new opportunities early.
- Identifies Threats – Warns about dangers like competition or new substitutes.
- Provides Resources – Environment supplies finance, labour, raw materials, etc.
- Helps Handle Changes – Enables firms to adjust to fast market and technology changes.
- Supports Planning – Helps in making better plans and business policies.
- Improves Performance – Firms that understand the environment perform better and survive longer.
Key Points: Dimensions of Business Environment
- Economic Environment – Interest rates, inflation, income, etc., affect demand and costs.
- Social Environment – Customs, values, and trends influence business activities.
- Technological Environment – New technology changes production and competition.
- Political Environment – Political stability and government policies affect business growth.
- Legal Environment – Laws and regulations must be followed to avoid problems.
Key Points: Components of Economic Environment
- Structure of Economy – Role of private and public sectors in the economy.
- Growth Rates – Growth of GNP and per capita income shows economic progress.
- Savings and Investment – Higher savings and investment support business growth.
- Trade and Balance of Payments – Imports, exports, and foreign exchange reserves affect business opportunities.
- Production and Infrastructure – Agricultural and industrial output, transport, communication, money supply, and public debt influence economic activities.
Important Questions [14]
- Explain Any Three Features Business Environment
- What is Meant by 'Business Environment'?
- State Any Three Points of Importance Of Business Environment
- Beni, After Completing Her Mba, Took up a Job with a Multinational Company Named 'Fortio'. A. State the Dimension of the Business Environment Being Discussed Above. B. State the Principle of Management Being Followed by 'Fortio'. C. Identify Any Two Values Being Communicated by the Company to the Society in the Above Case.
- 'Cartoony Planet' is a well-known indoor playground for organising parties for children in Noida. It has many play-stations and it organises various activities for the kids to enjoy
- What is Included in ‘Technological Environment’ of Business? State.
- What is Included in the 'Political Environment' of Business? State.
- Why is the Understanding of Business-environment Important for Managers? Explain with the Help of Any Four Points
- What is Included in the 'Legal Environment' of Business? State.
- “Dolma’ and ‘Una’ were gardeners with decades of hands-on experience. They were the first ones to recognise the need of indoor gardens specially for plant-lovers living in apartments.
- What is Meant by 'Globalisation'?
- Giving Any Four Points, Explain the Impact of Government Policy Changes on Business and Industry.
- What is meant by ‘liberalisation’?
- In the Above Paragraph, Two Major Concepts Related to Government Policy Have Been Discussed. Identify and Explain These Concepts. Also, Explain Briefly Any Three Impacts of These Concepts on Indian Business And Industry.
Concepts [6]
- Concept of Business Environment
- Importance of Business Environment
- External Factors> Natural Environment
- Impact of Government Policy Changes on Business with Special Reference to Liberalization, Privatization and Globalization in India
- External Factors> Economic Environment
- Overview of Business Environment
