Dimensions of the business environment mean all the factors, forces and institutions which have direct or indirect influence over business transactions.
General Environment is the most important dimension of the business environment as businessmen cannot influence or change the components of the general environment; rather, they have to change their plans and policies according to the changes taking place in the general environment.
Economical Environment
Economic Environment consists of Gross Domestic Product, Income level at the national level and per capita level, Profit earning rate, Productivity and Employment rate, Industrial, the monetary and fiscal policy of the government etc.
The economic environment factors have an immediate and direct impact on the businessman so businessmen must scan the economic environment and take timely actions to deal with these environments. The economic environment may put constraints and may offer opportunities to the businessman. After the new economic policy of 1991, lots of opportunities are offered to businessmen. The common factors which have influenced the Indian economic environment are
(a) Banking sector reform has led to many attractive schemes of deposits and lending money. The Banks are offering loans at a very nominal rate of interest and with minimum formalities to be completed.
(b) Recent changes in the economic and fiscal policy of the country have encouraged NRIs and foreign investors to invest in Indian companies.
(c) Lots of economic reforms are taking place in leasing and financing institutions. The private sector is allowed to enter financial institutions; as a result, customers are gaining.
Some Aspects of the Economic Environment
(i) Role of Private and Public sector
(ii) Rate of growth of GDP, GNP, and Per Capita Income
(iii) Rate of Saving and Investment
(iv) Balance of Trade
(v) Balance of Payment
(vi) Transport and Communication System
(vii) Money Supply in the Economy
(viii) International Debt
Social Environment
Social Environment consists of the customs and traditions of the society in which business is existing. It includes the standard of living, taste, preferences and education level of the people living in the society where the business exists.
The businessman cannot overlook the components of the social environment as these components may not have an immediate impact on the business but in the long run, the social environment has a great impact on the business.
For example, when the Pepsi Cola Company used the slogan “Come Alive” in their advertisement then the people of a particular region misinterpreted the word “Come Alive” as they assumed it means Coming out of Graves. So, they condemned the use of the product and there was no demand for Pepsi-Cola in that region. So, the company had to change its advertisement slogan as it cannot survive in the market by ignoring the sentiments of the people.
In India also, there are many Social reforms taking place and the common factors of the Indian Social Environment are:
(a) Demand reservation in jobs for minority and women
(b) Demand for equal status of women by paying equal wages for male and female workers
(c) Demand for automatic machines and luxury items in middle-class families
(d) The social movements to improve the education level of girl children.
(e) The Health and Fitness trend has become popular.
Some Aspects of the Social Environment
(i) Quality of life
(ii) Importance or place of women in the workforce
(iii) Birth and Death rates
(iv) Attitude of customers towards innovation, lifestyle etc.
(v) Education and literacy rates
(vi) Consumption habits
(vii) Population
(viii) Tradition, customs and habits of people
Political Environment
The political environment constitutes all the factors related to government affairs such as the type of government in power, the attitude of the government towards different groups of societies, policy changes implemented by different governments etc. The political environment has an immediate and great impact on business transactions so businessmen must scan this environment very carefully.
The businessman has to make changes in his organization according to the changing factor of the political environment. For example, in 1977 when Janata Government came into power they made the policy of sending back all foreign companies. As a result, the Coca-Cola Company had to close its business and leave the country.
The common factors and forces which have influenced the Indian political environment are:
(a) The government in Hyderabad is taking a keen interest in boosting the I.T. industry, as a result, the state is more commonly known as Cyber bad instead of Hyderabad.
(b) After the economic policy of liberalization and globalization, foreign companies easily entered India. As a result, Coca Cola which was sent back in 1977 came back to India. Along with Coca-Cola, Pepsi-Cola and many other foreign companies are establishing their business in India.
Some Aspects of the Political Environment
(i) Present political system
(ii) Constitution of the country
(iii) Profile of political leaders
(iv) Government intervention in business
(v) Foreign policy of the government
(vi) Values and ideology of political parties
Legal Environment
The legal environment constitutes the laws and various legislations passed in the parliament. The businessman cannot overlook the legislation because he has to perform his business transactions within the framework of the legal environment.
The common legislation passed which has affected business transactions are Trade Mark Act, Essential Commodity Act, Weights and Measures Act, etc. Most of the time legal environments put constraints on the businessman but sometimes they also provide opportunities. The common instances of the Indian legal environment which have influenced business transactions recently are:
(a) Deregulation of the capital market has made it easy for businessmen to collect capital from the primary market.
(b) Removal of control from the foreign exchange and liberalization in investment is encouraging foreign investors and NRIs to invest in the Indian capital market.
(c) Advertisement of alcoholic products is prohibited.
(d) Compulsory to give statutory warning in Tobacco production.
(e) Delicensing policy of industries.
Some Aspects of the Legal Environment
(i) Various laws and legislative acts.
(ii) Legal policies related to licensing.
(iii) Legal policies related to foreign trade.
(iv) Statutory warnings essential to be printed on labels.
(v) Foreign Exchange Regulation and Management Act.
(vi) Laws to keep a check on Advertisements.
Technological Environment
Technological environment refers to changes in the method of production, and the use of new equipment and machinery to improve the quality of products. The businessman must closely monitor the technological changes taking place in his industry because he will have to implement these changes to remain in the competitive market.
Technological changes always bring quality improvement and more benefits for customers. The recent technological changes in the Indian market are:
(a) Digital watches have killed the prospects and the business of traditional watches.
(b) Color T.V. technology has closed the business of black and white T.V.
(c) Artificial fabric has taken the market of traditional cotton and silk fabrics.
(d) Photocopiers and Xerox machines have led to the closure of the carbon paper business.
(e) Shift in Demand from vacuum tubes to transistors.
(f) Shift from steam locomotives it's diesel and electric engines.
(g) From typewriter to World Processors.
Some Aspects of the Technological Environment
(i) Various Innovations and Inventions.
(ii) Scientific Improvements.
(iii) Developments in the IT sector
(iv) Import and Export of Technology.
(v) Technological Advances in Computers.
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