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Dimensions of Business Environment

Last updated date: 24th Apr 2024
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An Introduction

We all live in an Environment that is dynamic and one that changes all the time. It is hence necessary to understand all the changes in the Environment and how these changes will affect the performance. But to understand the Dimensions of Business Environment – Definition, Economic and Political Environment it is important to understand the Business Environment and then look into more about the dimensions of the same. Here at Vedantu students who belong to the Commerce field can now access the articles written by Vedantu experts where a detailed explanation of Dimensions of Business Environment – Definition, Economic and Political Environment, and all its aspects have been provided in detail.

What is the Business Environment?

No Business can indeed exist without support. It is also seen that the rapidly changing Business Environment might even shorten the life of a provided strategy. Furthermore, the external changes might influence the activities and the quality of decisions that involve both the firm and its competitors. It is also truly stated by Charles Darwin that it is neither the strongest nor the most intelligent of all species that survive, instead, it is the most responsive to changes in the Environment that lasts in the long run.

Major Elements of Social Environment:

  1. concern with the quality of life

  2. birth and death rates

  3. populations shifts

  4. consumptions habits

  5. composition of a family

  6. attitudes towards product innovation, lifestyles, occupational distribution, and consumer preferences

The Dimension or the agents that foster the formation of a Business Environment include Political, Social, Technological, Economic and Legal circumstances scrutinised accordingly for enhancing the achievement of trading concerns and decision-making. In contrast to an explicit Business Environment, these factors manifest the predominating Environment, which often impacts several companies at the same time. 


The changing dimensions of the Business Environment influence the Business Environment like the Investors, Suppliers, Competitors and even the Customers. However, the Administration of every Business sector profits through one of the changing dimensions over unbiased behaviour. There are five general forces that effects and changes the dimensions of the Business Environment:


Legal Environment

The Legal Business Environment includes several Laws passed by the Government and the resolutions rendered by agencies, commissions, courts, government authorities and the Local, State and Central Government. Every Business must hold a prerequisite legal understanding for the plain sailing of the Business and industry functions and to avoid any legal tangle.


In a Legal Business Environment, it is a must for every Business to hold some knowledge of the Laws like the Consumer Protection Act, 1986, Policies about Foreign Trade, Industrial Disputes Act, 1947, Companies Act, 2013, Policies relating to approvals and licences, Competition Act, 2002, and so on. For Example, Labour Law helps companies to stay away from penalties or It is mandated for Tobacco Companies to state its consequences on their product.


Economic Environment

The Economic Environment comprises Economic Conditions prevailing in the Environment, Economic System and Economic policies in a Business Environment.

  1. Economic Policies in Business Environment

To control the Business Environment, the Government meets a range of objectives like Predictability, Health and Safety and Stability. To combat the welfare of the public, Local, State and National policies are drafted that affect the planning and operations of the Business sectors profoundly. The economic Policies in the Business Environment direct the country’s economic activities like Public debt, Import and Export, Tax structure, Industry and so on.


  1. Rate of Inflation

Inflation plays a vital role in fostering a better economic Environment. Suppose the economy is booming with a constant Business flourish and an increase in the purchasing power of the consumer. In that case, the producer can sell a commodity at a premium price in the market. 


Whereas, during an economic depression, the purchasing or investing power of consumers topples and the producer has to re-establish the prices of the commodity. 


  1. Demand and Supply Chain

Businesses can foresee and identify potentially profitable opportunities that raise an incentive to the demand of a product followed by increased production. The demand and supply chain of a commodity influence the economic Business Environment excessively. The factor is highly dependent on the demand of a commodity and the producer’s ability to fabricate it on time.


Political Environment

The political factor is the most critical Dimension of a Business Environment comprising external factors such as peace and political stability. It takes into consideration the ideology of the dominant political party in the country. Businesses function with the framework and nature of the predominating political party, which means that the actions initiated by the Government, potentially affect the activities and domestic products of companies or Businesses at a global level. 


A Business’s success depends on the peace of the country, the Government’s attitude towards the industry, and the stability of the Government, the constitution of the country, Political ideology, and the degree of Politicisation. For Example-  The Political Stability and the Central Government’s attitude towards the industry, Business, or employment has captivated several International and National entrepreneurs to invest in India.


Social Environment

The Social Environment comprises values, the standard of living, traditions, levels of education and more. All the forces hold a significant impact on the Business sector of the country. 


  1. Values

Values refer to the social paradigm and the standard principles prevailing in society, such as Non-discriminatory practices, social justice, Equality, Freedom, etc. Organisations believe in social values to maintain prominence in society and ease their way to sell products.


  1. Traditions and Culture

Traditions and Culture refer to the social stigmas and practices enduring for decades in the country which influences the Businesses such as Christmas, Diwali, Ugadi, and Eid. An increase in demand during festive seasons provides opportunities for various Businesses. Therefore, Businesses should plan and strategize accordingly.


  1. Trends in the Social Environment

Social trends are the general development of change such as Fitness and Health trends in the society. The Fitness and Health trend in society has generated a  great demand for mineral waters, gyms, etc.


Technological Environment

The Technological Environment comprises innovations and scientific improvements which foster updated techniques, render services, produce goods and new approaches. A company needs to comprehend the various levels of scientific achievements of the economy before introducing a product. Technological compatibility of products also propels the demand for manufactured products by a company. For Example, E-Commerce has transposed the Business game, the buying and availing of services through the Digital Platform, and the Digital India initiative to metamorph into a better society.

FAQs on Dimensions of Business Environment

1. What are the Dimensions of International Business?

Macro environment comprises eight factors that regulate the dimensions of International Business such as the Political, Socio-cultural, National Competitive Advantage, Legal, Global, Economic, Demographic and Technological. The microenvironment fosters the competitive environment, the industry environment and the environment in which any organisation accepts in its discrete arena.

2. What are the Dimensions of Business Environment?

Dimensions of Business Environment are the factors that determine the business scenario of the country. Five major dimensions of the business environment foster critical decision-making to improve the operations of a firm. The dimensions of the business environment influence the performance of the firm; they are Social environment, Political environment, economic environment, technological environment and Legal environment.

3. What are the main objectives of learning the Dimensions of Business Environment – Definition, Economic and Political Environment?

The main objectives of learning the Dimensions of Business Environment – Definition, Economic and Political Environment can be provided as follows:

  1. students will be able to understand the concept of the Business Environment and its significance

  2. identify the components involved in micro and macro Business Environments and the levels at which the Environment operates

  3. students will be able to describe the emerging scenario of the Business Environment in India and the implications it has on Indian Businesses.

  4. students will be able to explain the process of Environmental scanning for Business organizations to identify the Business opportunities and Environmental threats that may be involved.

4. How many types of Business Environments are present?

The types of Business Environments can be broadly categorized into two as follows:

1. Internal Business Environment:

The internal Business Environment will mostly consist of conditions and forces that are available within an organization that affects the overall organizations' management. Aspects of the internal Business Environment may include the following:

  • organizations mission

  • corporate culture

  • units of organizations and unions

  • board of directors

2. External Business Environment:

The external Business Environment consists of all those factors that affect the firm from out of the organizational boundaries. However, the boundary that distributes the inner and outer Environment is not always clear and precise.

5. What are some of the important features of the Business Environment?

Some of the important features of the Business Environment can be provided as follows:

  1. the totality of external forces

  2. specific and general forces where specific forces include investors, customers, competitors, and likes whereas general forces include social, political, and legal conditions

  3. inter-relatedness shows how each of the parts of the Business is interrelated to each other

  4. dynamic nature of the Business Environment where the Environment keeps on changing with new changes in policies or competition

  5. uncertainty in predicting various strategies and their accomplishments in the Environment.

6. How does learning the Dimensions of Business Environment – Definition, Economic and Political Environment helps students learn more about the competitive Environment?

By learning more about the Dimensions of Business Environment – Definition, Economic and Political Environment, the students get to know the following things:

  1. It enables the firm to identify opportunities and hence get the advantage of being the first to identify the same

  2. It helps the firm to check any threats and hence give out any warning signals in case there are any threats found

  3. Give an overall boost in the performance enabling the form to do well

  4. Gives the chance to a firm to cope with the rapid changes that are occurring.

7. Does Vedantu provide many resources to understand the Dimensions of Business Environment – Definition, Economic and Political Environment?

Yes, Vedantu makes sure to provide enough resources and information to let students know more about Dimensions of Business Environment – Definition, Economic and Political Environment. Students can also get to access various Vedantu NCERT Solutions for Class 12. Those students who would like to know more about the topic can also check the Vedantu sample papers specifically designed with important questions and answers to improve their grasping skills. With all of these resources, students can now learn and understand what Dimensions of Business Environment – Definition, Economic and Political Environment mean and how it has its applications.