Business

environment
Business environment/ Entrepreneurship
environment refers to the various forces within which
various small, medium and large enterprises operate.
These factors exert influence upon each other and do not
operate in isolation.
Business environment may be healthy or unhealthy.
Healthy business environment means the conditions are
favorable to the growth of business whereas
Unhealthy environment implies conditions hostile or
unfavorableto business operations
If an entrepreneur is not aware of the environment
surrounding his/her business, he/she is sure to fail.
 Features of business environment
Dynamic Nature
Business environment is dynamic in nature i.e. it keeps on
changing. For example, change in government policies, change
in taste and choice of the consumer, change in technology etc.
Complexity
The business environment is not simple; it is complex by virtue
of the various components that comprise it and the
interactions and interrelationships among these factors.
Uncertainty
Business environment is largely uncertain, as it is very difficult
to predict future happenings, especially when environmental
changes take place too frequently.
Environment is multi-faceted
The business environment is many-sided. It can be viewed
from many angles by the parties involved. Hence, an
occurrence that is viewed as strength to an organization may
be perceived as a weakness by another.
Inter-Relatedness
Various elements of business environment are very closely
related to each other. Thus a change in one factor affects the
other factor.
Environment has a far reaching impact
The environment can have both positive and negative impact
on the business. Changes in the environmental factors have
long lasting effects on the functioning of the business.
Internal environment
The internal environment refers to those factors over
which the entrepreneur has control, at least in the short
run.
The internal environment is made up of factors within the
firm itself.
Examples include employees, company policy, capital
assets, the firm's structure and the firm's products
(materials).
External environment
The external environment refer to those factors over
which the entrepreneur has no control but have
tremendous impact on the survival of the business.
The external environment consists of two further
divisions
1. micro-environment
2. macro-environment
Micro environment/ task
environment.
The micro-environment affects the organization directly. It
refers to the environment that most closely linked to the firm.
This environment is also not under the full control of
business.
The Micro Environment consists of some forces. That are,
1. Companys Suppliers
2. Marketing Intermediaries
3. Customers
4. Competitors
5. Public
Micro environment
Customers are the actual buyer of our goods and services.
Suppliers are firms and individuals that provide the resources
needed by the company.
Competitor, A business rival of a firm supplying a particular good
or service which offers buyers an identical or similar product.
Marketing intermediaries are firms that help the company to
promote, sell, and distribute its goods to final buyers.
Publics is a generic term encompassing all the groups that have
actual or potential impact on the company.
The range of publics can include financial publics, local publics,
governmental publics, media publics, citizen action publics and
many others.
Macro Environment/ General
Environment
Macro Environment: Includes all factors that can influence an
organization but that are out of their direct control.
It consists of broader forces that not only affect the company and
the industry, but also other factors in the micro-environment.
It is continuously changing and the company needs to be flexible
to adapt.
The macro-environment includes political, economic, socio-
cultural, technological and environmental forces,
It is also therefore known as the PESTE environment.
Economic environment
Some determinants as an entrepreneur can assess to
know how economic factors are affecting business
The inflation rate
The interest rate
Disposable income of buyers
Credit accessibility
Unemployment rates
The foreign exchange rate
Political legal environment
Some determinants as entrepreneur can assess to know
how Political factors are affecting business
Government policies
Taxes laws and tariff
Stability of government
Product regulations
Employment regulations
Health and safety regulations
Social- cultural environment
Some determinants as entrepreneur can assess to know
how Social factors are affecting business
Distribution of Wealth and income
Population growth
The social lifestyles
Educational levels
Technological environment
Firms can use these factors for their benefit:
New discoveries
Rate of technological obsolescence(outdated)
Rate of technological advances
Innovative technological platforms( software
application)
Physical Environment
Some environmental factors that entrepreneurs can
study are:
Geographical location
The climate and weather
Waste disposal laws
Energy consumption regulation
Peoples attitude towards the environment
Environmental scanning
Environmental scanning refers to the means by which
organizations gather information on changing conditions and
incorporate those observations into a process where necessary
changes are made.

Environmental analysis is the process of assessing and

interpreting the information gathered under scanning.

NOTE: The tool used to analyze the macro environment is PESTE,

and the tool used to analyze the micro environment is Porter`s five
forces analysis and SWOT analysis
SWOT ANALYSIS
SWOT analysis: Is a framework for identifying and analyzing
the internal and external factors that can have an impact on
the viability of a Firm, project, product, place or person.
SWOT analysis: Is a tool that helps a firm to assess its
environment to find the opportunities and threats and identify
its internal strengths and weaknesses in a systematic manner.
A SWOT analysis examines 4 elements
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats
A SWOT analysis examines 4 elements
1. Strengths
Strengths are inherent capacities, which a business can use to gain
strategic advantage over its competitors. they are the internal strong
points of the business such as: its core skills, competencies and
expertise.
2. Weaknesses
Weaknesses are inherent limitations or constraints, which create
strategic disadvantages, they are the internal factors that are lacking in
the business
3. Opportunities
External factors that project use to its advantage.
4. Threats
External factors that could jeopardize the project.
Importance of environment
1. Identification of opportunities to get first mover
advantage
2. Formulation of strategies and policies
3. Tapping useful resources
4. Better performance
5. Sensitization of entrepreneurs to cope up with rapid
changes
6. Image building