Business Environment: Meaning, Characteristics, Scope and Significance

“Business Environment encompasses the -climate’ or set of conditions, economic, social, political or institutional in which business operations are Conducted.”—Arthur M. Weimer

“Environment contains the external factors that create opportunities and threats to the business. This includes socio-economic conditions, technology and political conditions.” – William Gluck and Jauch

‘‘Business environment is the aggregate of all conditions, events and influences that surround and affect it.”—Keith Davis

“The environment of business consists of all those external things to which it is exposed and by which it may be influenced directly or indirectly”. —Reinecke and Schoell.

“The total of all things external to firms and industries that affect the function of the organization is called business environment.”—Wheeler

“Civilizations require challenges to survive. Thus environment also contains hostilities and dangers that may be overcome by individuals and organizations.”—Arnold J. Toynbee

On the basis of the above definitions, it is very clear that the business environment is a mixture of complex, dynamic and uncontrollable external factors within which a business is to be operated.

Characteristics of Business Environment

The nature of Business Environment is simply and better explained by the following approaches:

(i) System Approach

In original, business is a system by which it produces goods and services for the satisfaction of wants, by using several inputs, such as, raw material, capital, labour etc. from the environment.

(ii) Social Responsibility Approach

In this approach business should fulfill its responsibility towards several categories of the society such as consumers, stockholders, employees, government etc.

(iii) Creative Approach

As per this approach, business gives shape to the environment by facing the challenges and availing the opportunities in time. The business brings about changes in the society by giving attention to the needs of the people.

Significance of Business Environment

Business Environment refers to the “Sum total of conditions which surround man at a given point in space and time. In the past, the environment of man consisted of only the physical aspects of the planet Earth (air, water and land) and the biotic communities. But in due course of time and advancement of society, man extended his environment through his social, economic and political function.”

In a globalised economy, the business environment plays an important role in almost all business enterprises. The significance of business environment is explained with the help of the following points:

(i) Help to understand internal Environment

It is very much important for business enterprise to understand its internal environment, such as business policy, organization structure etc. In such case an effective management information system will help to predict the business environmental changes.

(ii) Help to Understand Economic System

The different kinds of economic systems influence the business in different ways. It is essential for a businessman and business firm to know about the role of capitalists, socialist and mixed economy.

(iii) Help to Understand Economic Policy

Economic policy has its own importance in business environment and it has an important place in business. The business environment helps to understand government policies such as, export-import policy, price policy; monetary policy, foreign exchange policy, industrial policy etc. have much effect on business.

(iv) Help to Understand Market Conditions

It is necessary for an enterprise to have the knowledge of market structure and changes taking place in it. The knowledge about increase and decrease in demand, supply, monopolistic practices, government participation in business etc., is necessary for an enterprise.

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