Business Environment

The sum total of all External and Internal

factors that affect and influence the operation
of a business is called business environment.
It is a surrounding where the business
organization exists.
Business starts, operate and die in an
environment.
Business environment either provide
opportunities or threat.
 Internal Environment
Internal Environment: It includes 5 Ms i.e. man, material,
money, machinery and management, usually within the
control of business.
The factors which can be controlled by Business is called
Internal environment.
Business can make changes in these factors according to
the change in the functioning of enterprise.
Some examples of internal environmental factors are:
Management changes
Employee morale
Culture changes
Financial changes and/or issues
 Internal Environment
These are factors from inside the firm that
could affect performance.

1. Finance Available without money the firm

may not be able to do what they wish.

2. Ability of Staff the more capable staff are the

more productive they will be.

3. Information Available the better the

information the better the decisions made
 External Environment: Those factors which
are beyond the control of business enterprise
are included in external environment.
These factors are: Government and Legal
factors, Geo-Physical Factors, Political Factors,
Socio-Cultural Factors, Demo-Graphical factors
etc.
It is of two Types:
1. Micro Environment
2. Macro General Environment
 Types of External Environments:

The micro environment consists of the factors

that directly impact the operation of a
company.
The macro environment consists of general
factors that a business typically has no control
over. The success of the company depends on
its ability to adapt.
 The Micro Environment :
There are five factors that affect the micro environment:
suppliers,
customers,
marketing intermediaries,
Competitors,
Public.
Customers: They are the people who purchase product or
service by paying money. A satisfied customer is an important
element for business success. Therefore, a business must
understand changing needs, interest and preference of a
customer.
Suppliers: They are the people and institution who provides
resources and materials to business. To become success, an
enterprise has to maintain the warm and healthy relationship
with suppliers.
 Suppliers: They are the persons who supply
raw material and required components to the
company. They must be reliable and business
must have multiple suppliers i.e. they should
not depend upon only one supplier.
(2) Customers: Customers are regarded as the
king of the market. Success of every business
depends upon the level of their customers
satisfaction.
 Types of Customers:
(i) Wholesalers
(ii) Retailers
(iii) Industries
(iv) Government and Other Institutions
(v) Foreigners

(3) Market Intermediaries: They work as a link between

business and final consumers.
Types:-(i) Middleman (ii) Marketing Agencies(iii) Financial
Intermediaries
 (4) Competitors: Every move of the
competitors affects the business. Business has
to adjust itself according to the strategies of
the Competitors.
(5) Public: Any group who has actual interest
in business enterprise is termed as public e.g.
media and local public. They may be the users
or non-users of the product
ECONOMICAL ENVIRONMENT
Economic environment conditions such as
business cycle, unemployment, Inflation,
monitory policies, Industrial policies, trade
policies etc also affects the business environment.
For example:
If inflation is high, the prices of raw materials can
be expensive which can reduce profits.

If the economy is in recession, people tend to be

unemployed or worried about losing their job,
therefore not spending money on luxury goods.
 TECHNOLOGICAL FACTORS

Technology is about application of tools, methods

and techniques to improve production and
processes. Technology is life for growth and
competitiveness of Business.
So Business need to keep up-to-date with the
latest technology in order to remain competitive.
Forexample:
Have seen a huge growth in e-commerce (buying
and selling online)
 It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex composition,
family size, income level (upper level, middle level and lower level), education level etc. Every
business unit must see these features of population and recognize their various need and produce
accordinglyn demographic environment of business, we can include following things
1. Size of population

All these elements are relating to business. If size of population is increasing with high growth rate,
demand is increased.

2. Growth rate

High growth rate of population is also tells us high rate of supply of laborers. Many companies motives to
invest money in developing countries due Cheap labor power and developing market.

3. Age composition

Before producing the product, we see what age group will use this. For example, young population are
interested to wear jeans but old age population are interested to wear curta and pajama.

4. Sex composition

Sex composition are two one is male and other is female. We also study the number of our
customers who are female and no. of our customers are female. If female are more than male, we
will care their need specially in making of our products.

5. family size

Suppose, we are making residential rooms. For making residential rooms, we should study the
number of family members who will live in it.

7. Educational level

Educational level of our customer may also affect our marketing techniques. If our customers are
very educated, we can use online advertising, if they are not educated we have to use old means of
advertising.
 Natural Environment: It includes natural
resources , weather , climatic conditions,
topographical factors such as soil, sea, rivers,
rainfall etc. Every business unit must look for
these factors before choosing the location for
their business
 International Environment:
Due to liberalisation, globalisation, now the Indian
companies are competing with the foreign
companies.
It has been observed that major international
developments have their impact on domestic
market.
Recent example is increase in fuel prices in Indian
market because of rise in prices of crude oil at
international level.
In the same way, because of US recession,
Indian stock market also faced downfall.