Dimensions of Business Environment

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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 concern 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 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 its 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.

2. 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. 

3. 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, 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 justices, Equality, Freedom, etc. Organisations believe in the social values to maintain prominence in society and ease their way to sell products.

2. 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 strategise accordingly.

3. Trends in the Social Environment

Social trends are 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, renders services, produces 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 Digital platform, and the Digital India initiative to metamorph into a better society.

FAQ (Frequently Asked Questions)

Q1. What are the Dimensions of International Business?

Ans: 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.

Q2. What are the Dimensions of Business Environment?

Ans: 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.