Business Environment and its Significance

DEFINITION OF BUSINESS

The term ‘business’ typically refers to the development and processing of economic values in society.

MEANING OF BUSINESS ENVIRONMENT:

Business Environment can be defined as the combination of internal and external factors that influence a company's operating situation.

The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.

These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc.

IMPORTANCE OF BUSINESS ENVIRONMENT

(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.

(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.

(d) Image Building: Environmental understanding helps the business organisations in

improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly.

(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global

developments.

Reference:

Business Environment by Francis Cherunilam, ICSI, Lovely Professional University , Bharathiar University and Calicut University.