“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 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 a 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
Based on 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 the Business Environment is simply and better explained by the following approaches:
(i) System Approach
Originally, business is a system by which it produces goods and services for the satisfaction of wants, by using several inputs, such as raw materials, capital, labour etc. from the environment.
(ii) Social Responsibility Approach
In this approach, the business should fulfil its responsibility towards several categories of society such as consumers, stockholders, employees, government etc.
(iii) Creative Approach
As per this approach, the business shapes the environment by facing challenges and availing the opportunities in time. The business brings about changes in 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, the man extended his environment through his social, economic and political function.”
In a globalized economy, the business environment plays a vital role in almost all business enterprises. The significance of the business environment is explained with the help of the following points:
(i) Help to understand the internal Environment
A business enterprise needs to understand its internal environment, such as business policy, organization structure etc. In such a case an effective management information system will help predict the business's environmental changes.
(ii) Help to Understand Economic System
The different kinds of economic systems influence business in different ways. A businessman and business firm need to know about the role of capitalists, socialists and mixed economies.
(iii) Help to Understand Economic Policy
Economic policy has its own importance in the 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
An enterprise must have knowledge of the market structure and changes taking place in it. Knowledge about increases and decreases in demand, supply, monopolistic practices, government participation in business etc., is necessary for an enterprise.
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