 Business Environment: It can be defined as the sum of all those factors,

conditions or circumstances which have direct or indirect effect on working

of business organizations.”
 Importance of Business Environment:
i. Enables the firm to Identify opportunities and getting first mover
advantage.
ii. Assisting in planning and policy making.
iii. Help to adjust and adapt with the rapid changes.
iv. Enables the firm to Identify threats and early warning signals.
v. Helpful in tapping and assembling resources.
 Features of Business Environment:
i. Dynamic in Nature.
ii. Business Environment is Complex.
iii. Set of Internal and External Factors.
iv. Multi-Dimensional.
v. Totality of Uncertain Factors.
 It is divided into two parts: Internal and External
 Internal: These include all those factors and forces which are inside the
organization and directly affect the working of organizations. These factors
are generally controllable and the organization can adjust situation as per
its requirements. These include:
 FINANCIAL RESOURCES: Financial Resources comprises, what capital
does a company have to invest it in expenditures like purchasing of
machinery, raw material etc.
 PHYSICAL RESOURCES: It comprises following assets like plants,
machinery, furniture, land, building etc.
 TECHNICAL RESOURCES: It includes the state of technology used by
the firm so that it can survive in the competitive world.
 HUMAN RESOURCES: Human Resources are the most important
assets of an organization. It helps organization to match its
manpower with skills to achieve necessary objectives.
 External: External Environmental Factors include all those factors which are
outside the organization and affect the working of the organization
indirectly. These factors are generally uncontrollable and beyond the
control of business. External Environmental factors are further classified
into two categories :
 Micro Environmental Factors: The Micro Environmental Factors are
closely related to the firm and they determine organisational
capability in terms of its strengths and weaknesses. It includes:
i. SUPPLIERS: Suppliers ensure regular supply of inputs (raw
materials and other components) to the firm.
ii. COMPETITORS: Competitors are those firms or companies
which are engage in producing the same products or services
as offered by one firm.
iii. CUSTOMERS: Customer is a prime factor of any business
enterprise. Only by satisfying the customers, the firm can
survive in this competitive market.
iv. MARKETING INTERMEDIARIES: It include services of transport,
warehouse, C&F agents, merchandising agencies, marketing
service agencies, advertising agencies, etc. to help
organization for smooth selling and distribution of goods and
services to customers.
v. SOCIETY: Customer is a part of society and society has different
cultures, religions, traditions, and systems. These elements
have great influence on business activities

 Macro Environmental Factors: The Macro Environmental Factors

consists of all those forces and factors which are beyond the controls
of the firm and the success of firm depends largely on its
adoptability. These includes:
i. ECONOMIC ENVIRONMENT: Economic environment consist of
Per capita income, GDP, National Income, rate of growth and
growth of GNP, Distribution of income, etc. It also includes
Economic Structure like –capitalistic, socialistic or mixed
 structure, Economic strategy, Planning and Economic Policy.
Economic environment directly affect the organization and
business.
ii. POLITICAL – LEGAL ENVIRONMENT: Political environment
constitutes all the factors related to the government affairs,
type of government in power, attitude of government towards
different groups of society, policy changes implemented by
different governments, etc. Legal environment constitutes the
laws and various legislations that were passed in parliament.
The businessman cannot overlook the legislations because he
has to perform business transactions within the framework of
business. Both have direct and immediate effect on Business.
iii. DEMOGRAPHIC ENVIRONMENT: It includes size, growth, age
composition, sex composition, etc. of the population in the
country. It also includes family size, educational levels,
language, religion, caste, etc. The demand for goods and
services is affected by demographic factors.
iv. T ECHNOLOGICAL ENVIRONMENT: The technological
environment comprises those factors related to applied
knowledge and the materials and machines used in the
production of goods and services. A technology is the
knowledge of new techniques or methods that improves our
production and distribution of goods and services.
v. SOCIO – CULTURAL ENVIRONMENT: Every business operates
within the norms of society has to primarily satisfy its needs
and wants. It includes social traditions, values and reliefs,
standard of literacy and education, etc. Knowledge of socio –
cultural environment is important to understand the business
environment.
vi. ECOLOGICAL ENVIRONMENT: Ecology consists the study of
nature, biotic factors- water, air, sunlight, soil, plants and other
micro organisms. Industrial activities, automobiles, emission of
 fumes or smoke and effluents and so on. These activities result
in environmental degradation.
 Environmental Analysis: Environmental Analysis is described as the
process which examines all the components, internal or external that has
an influence on the performance of the organization. The internal
components indicate the strengths and weakness of the business entity
whereas the external components represent the opportunities and threats
outside the organization.

 Advantages: The internal insights provided by the environmental

analysis are used to assess employee’s performance, customer
satisfaction, maintenance cost, etc. to take corrective action
wherever required. Further, the external metrics help in responding
to the environment in a positive manner and also aligning the
strategies according to the objectives of the organization.
Environmental analysis helps in the detection of threats at an early
stage that assist the organization in developing strategies for its
survival. Add to that, it identifies opportunities, such as prospective
customers, new product, segment and technology, to occupy a
maximum share of the market than its competitors.

 Steps:
I. Identifying: First of all, the factors which influence the
business entity are to be identified, to improve its position in
the market. The identification is performed at various levels,
i.e. company level, market level, national level and global level.
II. Scanning: Scanning implies the process of critically examining
the factors that highly influence the business, as all the factors
identified in the previous step effects the entity with the same
intensity. Once the important factors are identified, strategies
can be made for its improvement.
III. Analyzing: In this step, a careful analysis of all the
environmental factors is made to determine their effect on
different business levels and on the business as a whole.
Different tools available for the analysis include benchmarking,
Delphi technique and scenario building.
 IV. Forecasting: After identification, examination and analysis,
lastly the impact of the variables is to be forecasted.
 PESTLE:
Political factors - The political factors take the country’s current political
situation. It also reads the global political condition’s effect on the country
and business. When conducting this step, ask questions like “What kind of
government leadership is impacting decisions of the firm?”

Some political factors that you can study are:

 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations
Economic factors - Economic factors involve all the determinants of the
economy and its state. These are factors that can conclude the direction in
which the economy might move. So, businesses analyze this factor based on
the environment. It helps to set up strategies in line with changes.

I have listed some determinants you can assess to know how economic
factors are affecting your business below:

 The inflation rate

 The interest rate
 Disposable income of buyers
 Credit accessibility
 Unemployment rates
 The monetary or fiscal policies
 The foreign exchange rate
Social factors - S FOR SOCIAL FACTORS
Countries vary from each other. Every country has a distinctive mindset.
These attitudes have an impact on the businesses. The social factors might
ultimately affect the sales of products and services.

Technological factors - Technology is advancing continuously. The

advancement is greatly influencing businesses. Performing environmental
analysis on these factors will help you stay up to date with the changes.
 Technology alters every minute. This is why companies must stay connected
all the time. Firms should integrate when needed. Technological factors will
help you know how the consumers react to various trends.

Firms can use these factors for their benefit:

 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms
Legal factors - L FOR LEGAL FACTORS
Legislative changes take place from time to time. Many of these changes
affect the business environment. If a regulatory body sets up a regulation for
industries, for example, that law would impact industries and business in that
economy. So, businesses should also analyze the legal developments in
respective environments.

I have mentioned some legal factors you need to be aware of:

 Product regulations
 Employment regulations
 Competitive regulations
 Patent infringements
 Health and safety regulations
Environmental factor - E FOR ENVIRONMENTAL FACTORS
The location influences business trades. Changes in climatic changes can
affect the trade. The consumer reactions to particular offering can also be an
issue. This most often affects agri-businesses.