The enterprise has little influence on the environment and therefore, it is important for the company to identify with the environment of its operation and devise its policies in relation to the forces in that environment. Because even a slight change in political circumstances can make the business environment vulnerable. India has a mixed economy with clear-cut Industrial Policy. The department of environment serves as the main agency on behalf of the Government for planning, promotion and co-ordination of environmental programmes. These measures have, in fact, tremendously increased the responsibility of the industrialists towards the society. Before implementing any business policy, it is important for the company to understand its business environment. The availability of physical facilities limits the scope and prospects of business.Technology refers to the knowledge of how to do things. Hence, most of the industrial units are at the mercy of the Government to get adequate and timely supply of these materials to carry on their production schedule. These include economic, legal, political, technological, and socio cultural factors. Examples of environmental factors affecting business include: Climate; Climate change; Weather; Pollution; Availability of non-renewable goods; And consequently, Availability of certain renewable goods; Existence of certain biological species; Workplace efficiency; Environment-related laws; Here is how some of the aforementioned examples can affect business: It has also utilized licensing and brand extensions to plead to a younger customers of their fashion. The success or failure of an organization is primarily established by the effectiveness of its interaction with its environment. 1. Burberry, 2012, “Burberry Ltd”, viewed June 6, 2012 from http://www.fundinguniverse.com/company-histories/burberry-ltd-company-history.html. Businesses can’t control external factors but must respond to them. These factors need to understand by every business for its success. Shaikh S, 2010, "Business environment" New Delhi: Pearson, 2010. Geographical conditions exert influence on the decisions as to the type of industries and business to be carried on in a region. Several constraints are imposed on the enterprise by the environment and it imposes huge impacts and influence on the scope and direction of the company activities. Not all you said is understandable. The business enterprises should constantly watch the developments taking place and make necessary adjustments in their production and marketing plans and strategies to fulfill the new social demands. Profit is the ultimate object of all business endeavors. Television moved from research to the commercial stage within 2 years and atomic bomb in six. But now the situation is changing. Businessmen should not act with profit motive only. It helps the management to have a complete understanding of the external or bigger environment prevalent in the region.It further facilitates the decision-making bodies to plan and devise the most appropriate strategies and goals; all of which shall hit the target in the given market scenario.Such a… Here we have discussed about 6 important factors that influence business environment in brief. Technology refers to the knowledge of how to do things. Some companies have also been asked to be socially responsive. Even in South India, people in different states may not have similar tastes, likes etc. O.N.G.C. There are numerous criteria considered as external elements. Technological factors affects business concerning technological investment, technological application and the effect of technology on markets. If this is the case of water, it is needless to highlight the importance of other scarce resources. Now, the Third World countries are also increasingly realizing its importance. In India also, its importance is now well recognized by the Government. Likewise, certain industries are exclusively reserved for small sector, and large industrial houses and monopoly houses are debarred from entering into such lines of business. Economic factors that influence the business are the collective of the nature of the country’s economic system, its structures, and economic policies, how the capital market is organized, and nature of factors of production, business cycles, and socio-economic infrastructure. Hence, entrepreneurs shall naturally tempt to go for priority sector. This diversity is apparent even in small areas where the people are speaking the same language. Also, due to Japanese and American craving for prestigious designer goods, Burberry export business increased dramatically (Burberry 2012). External Factors Affecting Business #5: Political Climate. They should strictly adhere to the conditions laid down by the Pollution Control Boards in matters of treatment and discharge of trade effluents and wastage. Legal aspects not explained properly, Your email address will not be published. The spin off led to a high demand of financial assets and this lowered interest rates whilst raising prices of the respective assets. Business is affected by different factors which collectively form the business environment. enjoys a virtual monopoly over extraction of oil and mineral gas. In India, industries have been divided into two broad categories namely. The economic policy of the Government has a very decisive impact on the business units. In India, cotton textile industries are located in Mumbai and Coimbatore regions due to favorable climate. The company has implemented different policies and strategies to since introduction to make its business successful. Likewise, export oriented units and industrial units started in backward areas can also enjoy a number of benefits. Most important factors of micro environment of business are as follows: 1. competitors, 2. customers, 3. suppliers, 4. public, 5. marketing intermediaries, 6. workers and their union! Such encouragements are denied to non-priority sectors. In India, Government is the largest employer and the public sector controls a major share of the corporate sector. Burberry is listed on the London Stock Exchange. For example a country’s policy that restricts the growth of multinationals in the market will automatically limit the business operations of the company hence its growth. Therefore, the industrial units cared very little about the pollution prevention norms prescribed, and polluted water and air recklessly. For example, the company is targeting the Chinese shoppers directly by launching a site in China. Economic system can be classified into three broad categories viz.. Capitalist economy is at one end and the communist economy is at the other end. In fact, a number of companies in our country are now spending money for society’s welfare. Recession 4. They should give due weightage to the long-term welfare of the consumers as well as the society. In all economic situations low rates of interest encourage borrowing and the Federal government in a bid to improve this lowered the Federal fund rate from 6.5% to 1%. Business environment is therefore, the total of all external forces, which affect the organization and the business operations (Kotler &Armstrong 2004). Besides, it is the indicator of the efficiency of the business firm. affect the Marketing System of a country. A variety of labels are used to distinguish the company garments from imitations. It has branded stores and franchises globally, and sells through allowances in third-party stores. Political and legal intervention in the field of marketing and business activities has now become a common factor. “Economic development depends upon technical progress and innovations. The Government has also introduced certain amendments in the Water (Prevention and Control of Pollution) Act in 1988 to remove administrative and practical difficulties that emerged over the years after the enforcement of the Act. The company should tackle the business environment well since internal environment will reveal its strengths and weaknesses, while the external environment will reflect the opportunities available to the organization and the threats it faces. This heterogeneous population not only poses a challenge to the marketing task of an enterprise But its impact can be felt on the production side also. Entrepreneur and innovation is an important factor among several factors which effects the business environment of any country. Political factors are the variables that directly affect business operations. This environment poses a serious challenge to the business, and the business managers while formulating business strategies and policies should give due weight to this pivotal factor. These are factors which business can control. The Government passed the Environment (Protection) Act in 1986, which gives wide powers to the Government to take punitive action against erring industrialists. This political environment is influenced by the political organization, philosophy, government ideology, nature and extent of bureaucracy, the country’s political stability, its foreign policy, defense and military policy, the country’s image and that of its leaders both locally and internationally (Shaikh 2010). They should look for the Government’s sanction at each stage. In developed countries, the per capita income will be high and the size of the market will also be large. Similarly, the long-term view of the graphical representation below shows how the economic trends in business and household debt to Gross domestic product change with times and it is easily notable that in the periods of peak moments of the rate there is a high level of economic challenges such as the 1930s period and the 2000 to 2010 period. It is important for every business organization to interact and transact with its environment because the business environment has direct relationship with the organization. Mixed economy refers to a situation where public and private sectors co-exist. Factors Influencing Business Environment may be internal or external to the business environment. Economic environment. These forces include customers, creditors, competitors, government, socio-cultural organizations, and political parties, national and international organizations. Required fields are marked *. The impact of this demographic factor is more vital in India than any other country in the rest of the world. Deoras, well-known environmental specialist, in his article in “Economic Times”, says as follows. News And Information From Around The World. Physical factors mean and include geographical factors like weather, climatic conditions etc. Socio-cultural factors include anything within the context of society that has the potential to affect an organization. Inflation 5. These factors have a notable influence on business prospects. The impact of this environment is much more direct and deliberate than other factors. The lower the demand as portrayed in line two the lower the level of returns attained. Several State Governments have also set up boards to monitor air pollution and make suitable recommendations to control it. Similarly, the various trade barriers (including tariffs) created by different countries affect the domestic firms and their export efforts. Naturally their tastes, preferences, beliefs, temperaments are bound to differ. These political, economic, social, technological, environmental and competitive factors are represented by the acronym PESTEC. At the same time, certain external factors can also affect a company's chances of success. 6 Important factors of Business Environment and their Influence on Business, Factors of Business Environment and its Influence, 1. Exchange rates 3. Their castes and customs differ widely. Some companies are liberally donating their funds to educational institutions and universities for construction of building, for teaching programmes, for scholarships and even offer “Chairs” for specializing subjects. They are the Macro and Micro factors. Certain industries are exclusively reserved for the public sector, and private enterprises are not allowed to operate in those lines of business. Economic condition or the health of the national economy implies the consideration of many elements namely, the stage of development, economic resources, the level of income, the distribution of wealth and income etc. Business environment. The micro environment of the organisation consists of those elements which are controllable by the management. Burberry was able to establish its first foreign outlets in Paris, United States and South America, and export its first shipment of raincoat to Japan because of the government’s globalization policy. Hence the Governments all over the world prevent the businessmen and industrialists from recklessly exploiting the scarce resources for their immediate gains. Social environment is concerned with the environment of society as a whole — of which every one involved. Some of these forces affect the business directly but others affect business indirectly. There is also a comprehensive labour legislation, which force employers to pay minimum wages to workers in specific industries and statutory bonus payment is very liberal in approach. Some of these are under control of the business while some are not. Ecological environment can be defined as the complex aggregate of all external conditions, which affect the life, development and survival of all organisms. decide the type of living in a particular region. Sociological factors establish the culture of work, labor mobility, work groups etc, hence, business operation of an enterprise. Business Environment is the most important aspect of any business. The high borrowing fueled high citizen consumption in the period before the onset of the crisis and this consequently led to the raising of Feds fund rate which turned things in the situation that resulted. There are two types of environment that a business. The economic environment can be defined as the combination of all the economic factors such as, inflation, income, employment rate, etc. The social changes in life also lead to new fashion trends that affect business in any part of the economy. Some big business houses run their own educational institutions. Jute industry is located at Kolkatta due to the favorable geographical and climatic conditions to grow the raw material. Kotler, P & Armstrong, G., 2004, “Principles of Marketing”, Upper Saddle River, New Jersey: Prentice Hall. New demands are created and old one lost in due course. Various multinational corporations came into being. Natural environment includes factors such as seasonal variations, climatic differences, soil conditions and natural terrain.In consumer markets, the natural environment affects companies because of the differences in the nature of products bought by consumers due to variations in seasons and climate. This trend portrayed by the graph shows how the economic situation may affect the economy and general spending and therefore the performance of any business within such an economy. The Industrial Policy of India is an important consideration to our industrialists while starting their venture. Business environment determines the success or failure of this policy. These are all internal factors since the company has control over them and can improve them through company projects. The Government has introduced certain amendments in the Air (Prevention and Control of Pollution) Act in 1987 with a view to make the law more effective and severe. The value system of a business organisation also determines its behaviour towards its employees, customers and society at large. We have a dynamic i.e. So far we have discussed the economic environment within a country only. Business environment determines the success or failure of this policy. The trends on most business performances dropped during this period and Burberry experienced a low just like any other business. The legal environment affects the business and its managers greatly. But, in today’s world no country is isolated. Generally, goods, which are largely preferred by people in one region, may not be liked in another region. Joseph Schumpter was the first economist who recognized the place of technology in the sphere of economic development. increasing environment awareness has made this external environment factor a significant issue to be considered by business firms. The public policy environment is also an uncontrollable factor that affects the marketing environment. These factors include cost structure, customs and conventions, cultural heritage, peoples’ view towards wealth and income and scientific methods, seniority respect, mobility of labor (Shaikh 2010). Therefore, it can be concluded that economic trends are indeed significant determinants of general economic and business performance. Similarly, government policy that allows licensing that is liberal, liberal exportation and importation, inflow of foreign capital and technology, affects the business operation. Apart from these, their political loyalty also plays an important role in dividing them into various groups. As an Amazon Associate I earn from qualifying purchases. Again certain sectors are identified for special encouragement and this discriminates against others. The Government plays a number of roles as it interacts with business. Through this the company will be able to implement business policies that will ensure success. These forces include customers, creditors, competitors, government, socio-cultural organizations, and political parties, national and international organizations. Their influence over the performance of domestic firms is so vital. Business managers must understand the various facets of the impacts of the external environment. In the US the nature of business environment is dominated by the government regulations with a view to ensure a certain level of economic life to the people. This was meant to better business the economic situation after the 9/11. Since failure to make provision for such preventive means will entail punitive action, the industrialists should bear additional financial strains and liabilities. The higher the demand as portrayed in line three demand, the higher the sales level as well as the business performance. The then Prime Minister Mrs. Indira Gandhi appointed a High Power Committee to advise Government on this important issue. P.J. The Government exercises tight control over the extraction and exploitation of certain natural resources, which are essential for industrial performance. Geographical and Ecological or Natural Factors, 6. Technical environment. 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