Dimensions of business environment
Business environment is the collection of both internal and external environment of the business. All the factors, companies, organizations, institutions or forces which are part of this environment have direct or indirect influence on the organization. There are different dimensions of the business environment. These dimensions should be analysed properly for proper decision making and taking proper steps towards achievement of targets and goals of the organization.
When some changes occur in external environment it has effect on the business as well. That is why proper analysis and understanding of these elements is must to avoid huge threats to the company and convert it into opportunity. There are five elements of business environment. They are economic environment, technological environment, social environment, political environment and legal environment.
Economic environment includes all the economic factors which are mostly not in control of the organization. These factors are the changes in economy which can be either in favour of the business or may be against the business. These factors are of different types and can b e at the micro or macro level. These factors may affect each company differently.
At micro level these changes are:
- Demand of the product or service
- Supply of the product or service
- Local or state government policy changes
- Market size
At macro level these changes are:
- Inflation rate
- Interest rates
- Unemployment rate
- Tax rates
- Central government policies
- Banking sector changes
- Fiscal or monetary policy changes
- Disposable income: when income of consumers rises then the demand of certain products is also likely to rise. When they have higher income then they may demand the luxury products or products for better lifestyle.
- Inflation: inflation means gradual increase in prices of good s and services in an economy. When there is inflation in an economy then there will be more demand for product and less supply. Businesses should properly analyse this area to know how much to produce and what to produce. In long run, companies will have to learn how to control the cost of product and keep the products available to the consumers to remain in the market.
Technology generally means application of scientific knowledge. This is very important for business organization as it be useful for its operations or may be useful for other purposes such as advertisement, promotion, recording etc. there are many businesses that solely depend on technology such as telecom business. These businesses need to regularly update themselves according to the updates and developments in the technology. This constant upgradation not only helps them to keep up to date and efficient but to bring mind blowing strategies for their work in market.
Technological up-gradation may many times help the firm in keeping their cost of production low and bring in the better products or services and thus keep the consumers attracted towards that product or service.
- There was big change when the televisions came and radios were out of sight. This was the big technological change at that point of time.
- Now-a-days every possible business is turning towards online business or online applications such as food delivery apps like Zomato and Swiggy , medicine delivery apps like Practo or NetMeds etc.
Social environment includes the beliefs, behaviours, values, traditions, customs and trends. Business does not operate in isolation it has to return the favours taken from society in form of resources, man power etc. every society has its own social environment and it may or may not match with other societies. For example, social environment of India and china will be completely different.
- Our attitude, liking and disliking towards a particular product is based on the society we live in. For example, people of India may like spicy food and restaurants serving spicy food may be preferred in India but same restaurant may not be liked by people in America.
- Organizations are also affected by increase and decrease in population of that area or society. This indicates the demand of the product. If the area in which the business is sunning starts showing decline in the population then the demand of the product also decreases in that area.
- Tradition: tradition means the practices which the society is following over a period of time. Keeping in mind the tradition is very important and thus aligning the practices of businesses with these traditions will benefit the business in long run. For example, dominos provides special discounts and offers on occasion of diwali and Christmas.
- Values: values mean the moral practices and principles prevailing in a society. Such as social justice, equality etc. when an organization follows such values then the goodwill of that organization increases. For example, many businesses have started reserving seats for women candidate in an organization.
Political business plays a crucial role in working of the organization. Political environment means the working of the politics, the government and their policies. It largely depends on the government and their working and practices. There are many factors such as stability of the government, peace in the country and support of government towards the business that affects the operations of the business.
- Political stability: when the government is unstable then there will be disruptions and proper working will not be possible. There will be changes in government policies with change in each government party. Peace in the country is also must for proper functioning of the business.
- Government policies like fiscal policy, monetary policy, tax rates affect the businesses very much.
- When a business is producing a medicine at Rs.10 and keeps the price at Rs. 30 but government declares that medicine as essential and fixes its price at Rs. 15 then it affects the business and desired profit is not attained.
The laws, rules and regulations framed by the government for the business entities is the legal environment. Every business should be well versed with these laws because not following these can bring heavy fines, penalties, punishments and thus huge losses and may be closure of the business.
Legal environment helps the business to run ethically and serve the society by following the acts and laws and function morally. There are different laws created by the government which are to be followed by the businesses.
- Companies act, 2013
- Consumer protection act,1986
- Competition act, 2002
- The minimum wages act, 1948
Dimensions of the business environment are thus the areas which are present in the environment where business operates and can affect the business directly or indirectly. It may sometimes be in favour of the organization but proper analysis is still important to keep the business up and running.