[Commerce Class Notes] on Business Environment Pdf for Exam

Employees, customer demands and expectations, supply and demand, management, clients, suppliers, owners, government actions, technological innovation, social trends, market trends, economic changes, and so on are all included in the definition of the business environment. These factors have an impact on how business functions and operates, either directly or indirectly. The Environment and position of corporations or business organisations are influenced by the sum of these elements.

The business Environment aids in the identification of business prospects, the utilisation of valuable resources, planning, and the overall performance, growth, and profitability of the company. MicroEnvironments and macro Environments are two different sorts of business Environments.

Business Environment- Introduction

The most crucial part of any firm is its Environment. Suppliers, competitors, the media, the government, customers, economic conditions, investors, and a variety of other external entities make up the business environment. So let us begin by learning about the business environment and its importance.

The type of company organisation depends on a variety of factors, including the nature of the firm, the extent of activities, and many others. 

We hear terms like small businesses, big enterprises, and international corporations on a regular basis. These concepts are simply a way of describing business scales. 

Business industries, like every other industry, have seen major changes in the way they work overtime. 

Business Environment signifies the collection of individuals, entities and several significant internal and external factors which control the productivity and performance of a business. 

An Environment determines the growth, profitability and even longevity of a business and gets altered by them as well. These factors influence the operations of a company directly or indirectly depending on its type. 

An awareness of the business Environment helps businesses in assessing opportunities, assists in planning and the overall growth of an organisation. 

Components of Business Environment

Dimensions of Business Environment

The dimension of the business Environment refers to the sum of all factors, enterprises and forces which constitute direct or indirect influence over Business activities. Such five key elements are listed below. 

1. Social Environment 

It implies the tradition, culture, customs, values of a society in which the business exists. 

• Tradition: In India, festivals like Diwali, Christmas, Holi, etc. make provision for a financial opportunity for several market segments like sweet manufacturers, gifting products suppliers, etc. 

• Value: A company that follows long-held values like social justice, freedom, equal opportunities, gender equality, etc., excels in that given society.

• Recurrent Trends: It refers to development or general changes in a society like consumption habits, fitness awareness, and literacy rate, etc. which influence a business. For example, the demand for organic vegetables and gluten-free food is increasing; therefore, companies which manufacture food items keep this in mind attract more crowds. 

2. Legal Environment 

It includes the laws, rules, regulations, acts passed by the government. A company has to operate by abiding by the rule and regulations of laws like the Consumer Protection Act 1986, Companies Act 1956, etc. A proper understanding of these laws assists in the smooth operations of a company. 

Example: A cigarette-selling company compulsorily has to put the slogan “smoking is injurious to health” on every packaging.   

3. Economic Environment 

It involves market conditions, consumer’s need, interest rate, inflation rate, economic policies, etc. 

• Interest Rate- For example, interest rates of fixed-income instruments prevalent in an economic Environment impacts the interest rate it will offer on its debentures.

• Inflation Rate- A rise in inflation rate leads to price – hike; hence it poses limitations to businesses. 

• Customer’s Income- If the income of customers increases, the demand for goods and services will rise too. 

• Economic Policies- Policies like corporate tax rate, export duty and import duty influence a business.

4. Political Environment 

It consists of forces like the government’s attitudes towards businesses, ease-of-doing-business policies, the stability of the governing body and peace within the country. All of these factors are extremely crucial for a company to sustain. If the central, as well as local government sanctions, policies or acts in favour of businesses, the overall economy of the nation strengthens due to increasing employment, productivity and import and export of various products. 

Example – A pro-business government will make foreign investments more attractive in that country.   

5. Technological Environment

It comprises the knowledge of the latest technological advancements and scientific innovations to improve the quality and relevance of goods and services. A company that keeps track of this news regularly can mould their business strategies accordingly. 

Example: A Watch Company that sells smartwatches along with traditional watches will prosper as smartwatches are trendy recently. 

Solved Questions for you

1. ____________ consists of economic conditions, economic policies, industrial policies and economic systems.

• Business Environment

• Economic Environment

• Natural Environment

• None of the above

Ans. b) 

2. External Environment of business is 

• Physical

• Demographic

• Economic

• All of these

Ans. d)

 

What is the International Business Environment?

The changing dimension of the business Environment gives birth to an advanced international Environment for companies in a country. It denotes a periphery in which international companies run their business transactions across national borders. There are multiple dimensions of the international business Environment concerning cultural differences, exchange risks, taxation and legal issues. It is also known as Globalisation.

 

Since this Environment lets companies exchange goods and services with other countries, the management team must have a sound knowledge about their operational market. 

Importance of Business Environment

• Identifies business opportunities and possible threats

• Helps in growing a business

• Provides scope for learning

• Efficiently tackles competitions

• Aids in building a brand image

Environment plays a determining role in establishing a good performing company. Hence, learning all the essential dimensions of business Environment class 12 is a must to achieve a firm grip on business studies. To know more about this topic and other allied topics of business studies, check out ’s website today.