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The term “Business environment” represents the sum of all the individuals, institutions, competing organisations, government, courts, media, investors, and other factors outside the power of the business organisations but affects the business performance. Hence, changes in government economic policies, rapid changes in technology, changes in consumer tastes and preferences, increasing market competition, etc. are outside the business organisations' power but affect the business performance immensely. For example, an increase in taxes by the government makes everything expensive in the market; technology changes may make the existing product obsolete, political uncertainty creates fear in the mind of investors, increase in competition in the market due to competitors may affect business profit, and changing in demand and preferences may increase the need for a new product and decrease the demand for old product. Business Environment DefinitionThe term “Business environment " is the sum of all conditions, events, and influences that surround and affect business activities and growth. Components of Business EnvironmentInternal - It combines the factors that exist within the company. These are –
External - An external Environment includes those outside factors that exercise an influence on a business’s operations. It is further classified into two segments.
Features of Business Environment
Dimensions of Business EnvironmentThe dimension of the business environment refers to the sum of all factors, enterprises, and forces that constitute direct or indirect influence over business activities. Such five key elements are listed below.
It implies the tradition, culture, customs, and values of a society in which the business exists.
2. Legal Environment It includes the laws, rules, regulations, and acts passed by the government. A company has to operate by abiding by the rules 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 needs, interest rate, inflation rate, economic policies, etc.
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 itself. If the central and local government sanctions, policies, or acts are in favour of businesses, the nation's overall economy 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 regularly keeps track of these news can mould its business strategies accordingly. Example: A Watch Company that sells smartwatches and traditional watches will prosper as smartwatches are trendy recently. Practice Questions on Business Environment Dimensions with Answers
Ans. b)
Ans. d) Importance of Business EnvironmentThe business environment and its importance are necessary for the following reasons:
Impact of Government Policies on Business and IndustryThe different policies of the government, including liberalisation, privatisation, and globalisation, immensely impacts the working of enterprises in business and industry in terms of:
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Which of the following is not included in special powers of the business environment?Which of the following is not a component of specific forces of business environment? Explanation: (a) Technological conditions is a component of general forces that affect the business environment of an enterprise.
What are the elements of business environment Mcq?The components of a business environment can be media, customers, government, economic conditions, suppliers, competitors etc.
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