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What is business environment?

A business organization can not exist a vacuum. It needs living persons, natural resources and places and things to exist. The sum of all these factors and forces is called the business environment.

Business environment is of two types-
 (i) Micro environment or the internal environment
 (ii) Macro environment or the external environment

(i) Micro environment / Internal Environment of Business 

Micro environment comprises of the factors in the immediate environment of the company that affect the performance of the company. In includes the suppliers, competitors, Marketing intermediaries, customers, pressure groups and the general public. Supplier form an important factor of the micro environment of business as the importance of reliable sources of supply are obvious. Supplier include the financial labor input. Stock holders, banks and other similar organizations that supply money to the organization are also termed as suppliers. Managers always strive to ensure a study flow of inputs at the lowest price. Customers are also an important factor in the internal environment of business. The customers or the clients absorb the output of an organization and a business exists to meet the demands of the customers. Customers could be individuals, industries, government and other institutions. Labor force is also an important part of the internal environment of business. Other than these the business associates, competitors, regulatory agencies and the marketing intermediaries are also a part of the micro business environment.

(ii)  Macro environment / External environment of Business : 

The forces and institutions out side of the organization that can potentially affect the performance of the organization come under the external environment of Business. The macro environment of business consist of the economic, demographic, natural, cultural and political forces. The external environment of business is often categorized into the economic environment, political and government environment, socio cultural environment and the international environment.


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Components of Business Environment

The business environment can be divided into two ways.

(A) Internal Environment

(B) External Environment

(I) Micro Environment

(II) Macro Environment


Internal Environment: It includes all those factors which are with in the business itself and influence business. These are usually under the control of business. For example, objectives, policies, organisation structure, management, production method, etc.

External Environment: It includes all those factors which are outside the business and business has no control over these factors. It is divided into two parts:

(I) The Micro Environment of Business

The micro environment consists of the forces in the company’s immediate environment that affects the performance of the company. The micro factors may affect different firms in a particular industry in different ways.

It consists of following elements:

(i) Customers: Customers have direct impact on the micro environment of business. The desires, preferences, attitudes and expectations of customers keep on changing and it impose a constant challenge to business.

(ii) Suppliers: Suppliers are the most important force in the task environment of a businessFor the smooth functioning of the business it is very important to have a reliable source of supply. Multiple source of supply helps to reduce the risk of unavailability or uncertainty of supply of raw material.

(iii) Labour: In big organisations, where hundreds of workers are employed, the labour force is organized in the form of trade unions. The trade unions pressurise the management for the fulfillment of their demands like higher wages, better working conditions and bonus etc.

(iv) Competitors: Competitors play a vital role in running the business enterprise. Business has to adjust its business activities according to the behaviour of the competitors. It is very necessary to know about the competitor’s strategies, policies and product features for other companies to secure its market share.

(v) Regulating Agencies: The regulators include government departments and other organisations which monitor the activities of business. There are certain departments like income tax department, quality control department and other revenue departments and professional bodies like ICAI which prescribes certain standards and practices for the business in their respective areas.

(II) The Macro Environment of Business

The macro environment of business includes activities which are uncontrollable and need proper attention on the part of a business enterprise. It refers to the general and overall environment within which an environment entity operates.

It consists of following elements:

(i) Economic Environment: It refers to all those economic factors which have a bearing on the functioning of a business unit. The major macro-economic factors which have considerable influence on business are:

  • Economic Systems
  • Economic Planning
  • Economic Policies

(a) Budgets
(b) Industrial Regulations
(c) Business Laws
(d) Import and Export Regulations, etc.

  • Economic Growth
  • Interest Rates
  • Economic Reforms
  • Currency Exchange Rates

(ii) Political and Government Environment: Political environment constitutes all the factors related to government affairs such as the type of government in power, the ideology of ruling party, attitude of government towards different groups of societies. The businessman has to make changes in his organisation according to the changing factor of political environment. For example, in 1977 when Janata Party came in power they made the policy of sending back all the foreign companies. As a result, the Coca Cola and IBM companies had to close their businesses and leave the country.

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(iii) Socio-Cultural Environment: Socio-Cultural environment include all the social factors like people’s attitude, education system, their beliefs and values, culture, religion, ethical issues and social responsibility of business etc. All these factors have a great impact on activities of business enterprise. For instance, the chocolate boy ad of AXE Effect was banned by Information and Broadcasting Ministry on grounds of being offensive and vulgar.

(iv) Technological Environment: It consists of new products, new techniques and new approaches to production, new methods and new equipments. In order to survive in today’s competitive world, a business has to adopt technological changes from time to time. If they will not do so, they will be out of market. For instance, in late 1990’s Pagers were very popular among the people, but then came the mobile phone revolution. The companies those were manufacturing pagers at that time, they have to shift towards mobile phones.

(v) Demographic Environment: It includes:

(a) Size, growth rate, age composition, sex etc. of population

(b) Family size

(c) Educational level

(d) Economic stratification of population, etc.

All these demographic factors are relevant to business. These factors affect the demand for goods and services. For example, increase in the demand of baby products shows the increase in the birth rate in certain area.

(vi) 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.

The document National Business Environment & Components - International Business | International Business - B Com is a part of the B Com Course International Business.
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FAQs on National Business Environment & Components - International Business - International Business - B Com

1. What is the national business environment?
Ans. The national business environment refers to the economic, political, social, and legal conditions that exist within a specific country and affect the operations and growth of businesses in that country. It encompasses factors such as government regulations, tax policies, economic stability, cultural norms, and labor market conditions.
2. What are the components of the national business environment?
Ans. The components of the national business environment include: - Economic factors: These include the overall economic performance of the country, such as GDP growth rate, inflation rate, and exchange rates. - Political factors: These relate to the stability of the government, political ideologies, and policies that impact businesses. - Social factors: These encompass the cultural and social norms, demographics, and consumer behavior within the country. - Legal factors: These refer to the laws and regulations governing business activities, including contract law, intellectual property rights, and labor laws. - Technological factors: These involve the level of technological infrastructure and innovation within the country, which can impact business competitiveness.
3. How does the national business environment affect international business?
Ans. The national business environment plays a significant role in shaping the opportunities and challenges faced by international businesses. It affects international business in several ways: - Market access: The national business environment determines the ease of entry into a foreign market, including trade barriers, tariffs, and regulations. - Political risks: Political instability, government policies, and regulations can create risks for international businesses operating in a foreign country. - Consumer behavior: Cultural and social factors influence consumer preferences and purchasing behavior, impacting international marketing strategies. - Legal framework: Legal factors such as intellectual property protection and contract enforcement affect the business operations and legal compliance for international firms. - Economic conditions: The economic stability, growth rate, and exchange rates of a country can impact the profitability and viability of international business ventures.
4. How can businesses adapt to the national business environment?
Ans. Businesses can adapt to the national business environment by: - Conducting market research: Understanding the economic, political, social, and legal factors of the target country is crucial for adapting business strategies. - Building local relationships: Establishing partnerships and networks with local businesses and stakeholders can help navigate the local business environment. - Adapting marketing strategies: Tailoring marketing campaigns and product offerings to align with local consumer preferences and cultural norms. - Complying with regulations: Ensuring compliance with local laws and regulations is essential for avoiding legal issues and maintaining a good reputation. - Monitoring changes: Staying updated on changes in the national business environment and adapting business strategies accordingly can help businesses stay competitive.
5. What are some examples of the national business environment affecting international businesses?
Ans. Some examples of the national business environment affecting international businesses include: - Trade barriers: Tariffs, import restrictions, and trade regulations can limit market access for international businesses. - Political instability: Political unrest, regime changes, or government policies can disrupt business operations and increase risks for international firms. - Cultural differences: Different cultural norms, values, and consumer preferences may require international businesses to adapt their products, marketing strategies, and business practices. - Legal regulations: Varying legal frameworks, intellectual property protection, and contract enforcement can pose challenges for international businesses. - Economic conditions: Economic instability, currency fluctuations, and inflation rates can impact the profitability and financial viability of international business ventures.
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National Business Environment & Components - International Business | International Business - B Com


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