Understanding Business Environment

Jul 20 • General • 1271 Views • No Comments on Understanding Business Environment

When we talk of environment ,the first thing that come to our mind is the surrounding in which we live, therefore the term business environment signifies the conditions which can be political, social , economic and technological that are uncontrollable and influence the working of the organization. There are two main components of the business environment, that are external environment and the internal environment.

The internal environment in business include five things man, money, machine, material and management that can be controlled within the business. The organization is capable of making changes in these factors as per the changes in the functioning.

The external environment are those factors which comes from outside the environment and influence the working conditions of the business. These factors can include government, legal, technological, socio cultural, and demographical factors.

Economic Environment

This type of environment is very complex and flexible in nature since it changes with the change in the political situations. There are three main elements in this type of environment

  1. Economic conditions of the people
  2. Economic policies of the country
  3. Economic systems

It is also dependent on other economical factors which include banking, insurance companies, infrastructure, capital markets

Political Environment         

This type of environment has an extensive elect on the business activities. It has different components which include :

  • Belief of government on the political systems    Understanding Business Environment
  • Strength of country
  • Relationship with the other countries
  • Defence policies
  • Opposite thinking of the parties in the business unit

Natural Environment

This include the natural atmosphere like natural resources, weather conditions, facilities of ports, topological factors like soil, sea ,river, oceans rainfall etc. These factors should be considered by every business unit before selecting the location of the business.

Demographic Environment

It is the measure and size of the population that needs to be studied, the standards of living of the people, the growth rate, family size, income level of the people, all these factors need to be studied by the business unit in order to decide on the needs of the people.


Importance of Business Environment for the firm’s

Studying the business environment is an important factor that needs to be studied by all the business organizations. There is a lot of importance that is offered by studying the business environment which are :

  • It helps in analysing the opportunities and threats of the business unit
  • Gives the direction for growth to the firm
  • Helps in continuous learning
  • Helps building the image of the firm
  • Helps in fighting competition


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