Internal - It combines the factors that exist within the company. These are –
Vision and mission
External - An external environment includes those outside factors that exercise an influence on a business’s operations. It is further classified into two segments.
Macro - Factors like socio-cultural, political, legal, global fall into this category.
Micro - This environment has a direct and immediate impact on a business. It consists of customers, investors, suppliers, etc.
The dimension of the business environment refers to the sum of all factors, enterprises and forces which constitute direct or indirect influence over Business activities. Such five key elements are listed below.
It implies the tradition, culture, customs, values of a society in which the business exists.
Tradition : In India, festivals like Diwali, Christmas, Holi, etc. make provision for a financial opportunity for several market segments like sweet manufacturers, gifting products suppliers, etc.
Value : A company which follows long-held values like social justice, freedom, equal opportunities, gender equality, etc., excels in that given society.
Recurrent Trends : It refers to development or general changes in a society like consumption habits, fitness awareness, and literacy rate, etc. which influence a business. For example, the demand for organic vegetables and gluten-free food is increasing; therefore, companies which manufacture food items keeping this in mind attract more crowds.
It includes the laws, rules, regulations, acts passed by the government. A company has to operate by abiding by the rule and regulations of laws like the Consumer Protection Act 1986, Companies Act 1956, etc. A proper understanding of these laws assists in the smooth operations of a company.
Example: A cigarette-selling company compulsorily has to put the slogan “smoking is injurious to health” on every packaging.
It involves market conditions, consumer’s need, interest rate, inflation rate, economic policies, etc.
Interest Rate - For example, interest rates of fixed-income instruments prevalent in an economic environment impacts the interest rate it will offer on its debentures.
Inflation Rate- A rise in inflation rate leads to price - hike; hence it poses limitations to businesses.
Customer’s Income- If the income of customers increases, the demand for goods and services will rise too.
Economic Policies – Policies like corporate tax rate, export duty and import duty influence a business.
It consists of forces like the government's attitudes towards businesses, ease-of-doing-business policies, the stability of the governing body and peace within the country. All of these factors are extremely crucial for a company to sustain. If the central, as well as local government sanctions, policies or acts in favour of businesses, the overall economy of the nation strengthens due to increasing employment, productivity and import and export of various products.
Example - A pro-business government will make foreign investments more attractive in that country.
It comprises the knowledge of the latest technological advancements and scientific innovations to improve the quality and relevance of goods and services. A company that keeps track of this news regularly can mould their business strategies accordingly.
Example: A Watch Company that sells smart-watches along with traditional watches will prosper as smart-watches are trendy recently.
Solved Questions for you
____________ consists of economic conditions, economic policies, industrial policies and economic system.
None of the above
External environment of business is
All of these
The changing dimension of the business environment gives birth to an advanced international environment for companies in a country. It denotes a periphery in which international companies run their business transactions across national borders. There are multiple dimensions of the international business environment concerning cultural differences, exchange risks, taxation and legal issues. It is also known as Globalisation.
Since this environment lets companies exchange goods and services with other countries, the management team must have a sound knowledge about their operational market.
Identifies business opportunities and possible threats
Helps in growing a business
Provides scope for learning
Efficiently tackles competitions
Aids in building a brand image
Environment plays a determining role in establishing a good performing company. Hence, learning all the essential dimensions of business environment class 12 is a must to achieve a firm grip on business studies. To know more about this topic and other allied topics of business studies, check out Vedantu’s website today.
1. What are the Types of Environment in Business?
Ans. Environment involves factors like socio-economical, supplier, technological, competition, clientele or customers, and political. Two more factors play a crucial role in determining the environment of business. They are – natural or physical and global environment.
2. Who are the Major Players in the Business Environment?
Ans. The forces which regulate a business environment are its competitors, suppliers, investors, customers, media, government, economic conditions, and several other external working factors.
3. What does Micro Environment mean?
Ans. Micro Environment relates to the immediate factors that influence the direct and daily operations of a business. It is also called the task environment. It includes suppliers, customers, etc.
4. Why is the International Business Environment important?
Ans. A favourable International Business Environment effectively boosts the economy of a country. The competition between imports and exports lead to better product quality, lower price, wide range of selection and an improved standard of living.