Explain with examples, the various dimensions of business environment.

The following are the dimensions of business environment.

i. Economic Environment: It comprises of the economic variables such as interest rates, income, stock market indices that affect the functioning of the enterprises. For example, an increase in the income of the consumers increases the demand for goods and services of the enterprises. Similarly, a fall in the interest rates for loans for consumer durables increases the spending capacity and thereby, increases the demand for such products.

ii. Social Environment: Social environment refers to the social forces such as customs, traditions, social values, social trend etc. For example, religious celebrations provide business opportunities to many enterprises such as those producing sweets, decoration items, etc. Similarly, in India a change in social trend towards western lifestyle has increased the demand for western wear, fast food, etc.

iii. Technological Environment: Technological environment comprises of the technological changes and improvements. For example, introduction of computers, internet, have changed the way organisations work today. Similarly, continuous improvement and innovations in the technology used in the production improves the quality of production. While on one hand, improvement in technology provides new business opportunities for the enterprises, on the other hand, is a threat for the enterprises using obsolete technology.

iv. Legal Environment: It refers to the legislation and rules passed by the government such as the Companies Act, Trade union Act, etc. Knowledge of these legislation is essential for enterprises as their non-compliance can lead to legal trouble for them. For example, an export-import company in India has to follow the rules and regulations as stated under the EXIM policy and the Foreign Trade (Development and Regulation) Act, 1992. Similarly, the refining, processing, distribution, sale of petroleum, petroleum products is governed by the Petroleum and Natural Gas Regulatory Board Act, 2006.

v. Political Environment: Political environment comprises of political conditions such as peace and stability, law and order, etc. For example, a situation of political unrest such as frequent change in the ruling government implies a change in the rules and policies of the government regarding production and manufacturing. Such a frequent change in the regulations regarding production discourages investment. Similarly, the opening up of our economy under the New Economic Policy in 1991, provided business opportunity to many foreign companies.

Dimension of business environment

(i) Economic Environment: It includes the changes in the system due to economic policies made by the government. Reserve Bank of India is the key regulator of country’s economic environment since it 

(a) influences the interest rates 

(b) controls the flow of money in the economy 

(c) regulates the working of banks 

Example: When the banks reduce the interest rates on long term loans, automobiles and construction industries get a boost to the business as more spending is made on the purchase of homes and cars through loans. 

(ii) Social Environment: The social environment of business include the social forces like customs and traditions, values, social trends, society’s expectations from business etc. In business terms, these values translate into freedom of choice in the market. Major elements of social environment are 

(a) life expectancy 

(b) shifts in the presence of women in the workforce 

(c) consumption habits 

Example: Due to the shift in the presence of women in the workforce, the demand for readymade ladies formal wear, cosmetics, packed/processed food, electronic gadgets has gone up.

(iii) Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. 

Example Because of technological advancement, it has become possible to book railway tickets through internet from home, office etc. 

(iv) Political Environment Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. It is only of use when a business enterprise can predict its business activities under stable political conditions. Major elements of political environment are 

(a) The constitution of the country 

(b) The nature and profile of political leadership and thinking of political personalities 

(c) Political ideology and practices of the ruling party. 

Example: After the NEP of 1991, due to globalisation the foreign companies started coming to India, but due to the bureaucratic red tape it became difficult for them to cut through it to do business here. As a result, these companies were discouraged in our country regarding investments. The situation has improved overtime. 

(v) Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgements as well as the decisions rendered by various commissions and agencies. It is imperative for the management of every enterprise to obey the law of the land. Therefore, an adequate knowledge ohrules and regulations framed by the government is a pre-requisite for better business performance. 

Example: There is a government regulation to protect consumer’s interest e.g., the advertisements of alcoholic beverages is prohibited.

Dimensions of business environment 

1. Economic Environment: It includes the changes in the system due to economic policies made by the Government. Reserve Bank of India is the key regulator of county’s economic environment since it

(a) influences the Interest rates 

(b) controls the flow of money in the economy 

(c) regulates the working of banks

Example: When the banks reduce the interest rates on long term loans, automobiles and construction industries get a boost to the business as more spending is made on the purchase of homes and cars through loans.

2. Social Environment: The social environment of business includes the social forces like customs and traditions, values social trends, society’s expectations from business etc. In business terms, these values translate into freedom of choice in the market. 

Major elements of social environment are:

(a) life expectancy 

(b) shifts in the presence of women in the workforce 

(c) consumer habits

Example: Due to the shift in the presence of women in the workforce the demand for ready made ladies formal wear, cosmetics, packed/processed food and electronic gadgets have gone up.

3. Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.

Example: Because of technological advancement, it has become possible to book railway tickets through internet from home, office etc.

4. Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. It is only of use when a business enterprise can predict its business activities under stable political conditions. 

Major elements of political environment are:

(a) The constitution of the country 

(b) The nature and profile of political leadership and thinking of political personalities (cj Political ideology and practices of the ruling party.

Example: After the NEP of 1991, due to globalisation the foreign companies started coming to India, but due to the bureaucratic red tape, it became difficult for them to cut through it to do business here. As a result, these companies were discouraged in our country regarding investments. The situation has improved over time.

5. Legal Environment: Legal environment includes various legislations passed by the Government, administrative orders issued by government authorities, court judgements as well as the decisions rendered by various commissions and agencies. It is imperative for the management of every enterprise to obey the law of the land. Therefore, an adequate knowledge of rules and regulations framed by the government is a pre- requisite for better business performance.

Example: There is a government regulation to protect consumer’s interest e.g.. the advertisements of alcoholic beverages is prohibited.