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:
concern with the quality of life
birth and death rates
composition of a family
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:
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.
The Economic Environment comprises Economic Conditions prevailing in the Environment, Economic System and Economic policies in a Business Environment.
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.
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.
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.
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.
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.
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.
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.
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.
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.