Dimensions of Business Environment - Commerce PDF Download

Dimensions of business environment (or macro environment or general environment) have the following important factors:

(1) Economic Environment

Among the various factors of macro environment, the economic environment has a special significance. Economic environment can be divided into three parts. We shall now study their effect on business. They are as under:

(i) Economic system, (ii) Economic policies, (iii) Economic conditions,

(i) Economic System:

It is necessary to know about the economic system prevailing in a country in order to understand the economic environment. Economic system influences the freedom or openness of business. Economic system is mainly of three kinds:

(a) Socialistic Economic System (b) Capitalistic Economic System (c) Mixed Economic System.

(a) Socialistic Economic System:

Under this system, business is directed and controlled by the government. In other words, individuals have no freedom to run business. The government owns all the means of productions.

No individual has the right to have private property. All persons enjoy the benefits of centrally planned economy. All have equal rights. This system of economy is mainly adopted by Russia, China, Hungary and Poland.

(b) Capitalistic Economic System:

Under this system, private ownership of business is given importance. Hence, business gets extended. It is also known as free market economy.

Under this, all means of production (such as labour, land, capital, etc.) are owned by private people. What to produce, how to produce and by whom it will be produced-all such considerations are determined by the market forces.

Hence, it can be said that there is a complete freedom of consumption, production, savings, investment, etc. Such type of economic system is prevailing in USA and Canada

(c) Mixed Economic System:
Under this system, business is owned both by the government and individuals. Under this, several basic industries are run under the control and ownership of the government.

As far as the private sector is concerned, it is run by the private persons, but to save the interest of the country government regulates its activities. India is a good example of countries following these concepts of economy.

(ii) Economic Policies:

Economic policies deeply influence the business of a country. The economic policies are laid down to direct the economic activities.

Economic activities include import-export, employment, tax structure, industry, public expenditure, public debt, foreign investment, etc. In order to direct all these economic activities, the following economic policies are laid down:

(a) Export-Import Policy (b) Employment Policy

(c) Taxation Policy (d) Industrial Policy

(e) Public Expenditure Policy (f) Public Debt Policy

(g) Agriculture Policy (h) Foreign Investment Policy.

All these policies influence business. For example, under the import-export policy, restrictions on imports will benefit the indigenous industry.

(iii) Economic Conditions:

Economic conditions are those conditions which are related with the possibilities of economic development of a country. On the basis of the economic conditions the government starts various programmes for the welfare of the people.

These programmes influence business. Businessmen are influenced by these programmes and they start their own programmes like the advertisement policy, discovery of new market, bringing new products in the market, new methods of production, etc. Some of the examples of economic conditions are as under: (a) Flow of Foreign Capital (b) Supply of Natural Resources (c) Level of Economic Development (d) Rate of Interest (e) National Income (f) Industrial Development (g) Foreign Trade (h) General Price Level.

The following are the chief examples of the impact of economic environment on business:

(i) When reforms were introduced in the banking sector, the bank loans were allowed on easy terms. It also led to better services. It helped really fast development of business.

(ii) The change in the economic environment resulted in the establishment of Leasing Companies, Mutual Funds and Venture Capital Business.

(2) Political Environment

Political environment is the outcome of a combination of various ideologies advocated by different political parties.

Factors connected with the activities of the government are included in it, e.g., the type of government (single-party government or multi-party government), the attitude of the government towards different industries, progress in passing different laws.

The platforms of the political parties, the tendency of the applicants for different posts, efforts by various groups to get effective support for themselves, etc. Every political party has a different attitude towards business community.

A living example of this can be seen during elections in the shape of fluctuations in the share market. It is quite possible that the mere possibility of a particular political party coming into power can make the prices of share rise sky high. It is true conversely when the possibility of some other political party coming into power may bring the price of shares really nose-diving.

It clearly shows that the attitude of the first political party towards business is positive which gets reflected in the positive effect on the share market. On the other hand, the negative attitude of the second political party towards business is reflected in the nose-diving of prices of shares in the share market merely on the possibility of its coming to power.

The following are some of the examples of the impact of the political environment on business:

(i) In 1977, the Janata Government adopted a stringent attitude towards the multinational companies. As a result of this attitude, the multinational companies like the IBM and the Coca-Cola had to ignore India.

(ii) The new government encouraged the multinational companies for investment in India. This led to the opening of the doors of the Indian market for the multinational companies. Consequently, the Coca-Cola entered the Indian market once again.

(iii) It was only because of the political interest that Hyderabad came to be known as Cyberabad In other words; it came to be recognised as the centre of Information Technology (IT). As a result, many IT companies came to be established there.

(3) Social Environment

Business originates and develops in society. Therefore, the effect of various social factors on business is but natural.

Social factors include customs, fashions, traditions, wishes, hopes, level of education, population, standard of living of the people, religious values, distribution of income, corruption, family set-up, consumers’ consciousness, etc.

All social factors influence business in some way or the other. For example, the production of things should be according to the fashion. Similarly, religious values also influence business. For example, some years ago the manufacturers of Vanaspati Ghee used to import animal fat for manufacturing ghee.

On the basis of the strong public protests, the government cancelled the import license of these manufacturers. Similarly, with the news that some popular cold drinks contain pesticide elements, people protested against it and minimised the consumption of these cold drinks.

(4) Legal Regulatory Environment

Many Acts are passed from time to time in order to control and regulate business activities.

The sum total of all these Acts creates legal regulatory environment. Acts are mossy passed to regulate such business activities as sale-purchase, industrial disputes, labour, regulating partnership business, regulating company business, foreign exchange, etc.

In India, the following Acts have been passed in connection with the above business activities:

(i) Sale of Goods Act (ii) Industrial Disputes Act (iii) Minimum Wages Act (iv) Indian Partnership Act (v) Companies Act (vi) Trademark Act (vii) Essential Commodities Act (viii) Consumer Protection Act (ix) Standards of Weights and Measures Act. All these Acts influence business decisions.

The following are the examples of the impact of the legal regulatory environment on business:

(i) By removing control on the capital market, a huge amount of capital was collected by issuing various new issues in the primary market.

(ii) With introduction of relaxation in Foreign Direct Investment (FDI) and Foreign Exchange, many multinational companies entered the Indian market. Consequently, there has been a tremendous increase in the foreign exchange reserves in the country.

(5) Technological Environment

Technological environment includes the discovery of new methods and implements for the production of goods and services. Technological changes make available better methods of production and that makes the optimum use of the raw material possible.

The technological changes offer both the possibilities and threats for business. In case a company understands these things well in time it can achieve its objective, otherwise the very existence of the company is threatened.

For example, it becomes a technological change for the automobile industry to produce vehicles which consume less petrol in view of the ever increasing prices of petrol.

Only that company will be able to survive which can move with the changes taking place in the environment. Therefore, the companies should constantly watch the technological changes so that they are able to exploit the business opportunities.

The following are the examples of impact of technological environment on business:

(i) With the advent of television in the market, the cinema and the radio industry were adversely affected.

(ii) With the arrival of the Photostat machines in the market, the carbon paper industry suffered a setback.

(iii) With the entry of synthetic thread in the market, the cotton cloth industry was badly affected.

(iv) The digital watches have almost eliminated the market of the traditional watches.