Concept of Business Environment

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The business environment is the sum of all external and internal environmental forces that influence business decisions. Internal environment forces remain inside the organization such as owners, board of directors, employees, and organizational culture. External environment forces remain outside the organization such as task environment (like competitors, customers, suppliers, regulators, strategic allies) and general environment (like-political-legal, economic, socio-cultural, and technological-PEST). The business environment is complex, dynamic, mutual relationship, uncertain, far-reaching impact, and multi-faceted.

Business organizations cannot operate in isolation. They establish, operate, develop, and wind up in a specific environment. They surround and interact with their environmental forces. The internal environment provides strengths and weaknesses and the external environment provides opportunities and threats to them. Business organizations need to proactively or reactively respond to changing conditions in the environment.

The business environment is uncertain and relative to the situation. It is largely uncertain as it is very difficult to predict future happenings, especially when environmental changes are taking place too frequently as in the case of information technology or fashion industries. Similarly, it is a relative concept since it differs from country to country or region to region, or location to location.

Different authors and scholars have defined business environment differently; among them, some popular definitions are given below:

Business environment mainly refers to all external forces that impact businesses. —K. Aswathappa

Business environment is the aggregate of air Conditions, events, and influences that Surround and affect it. —Kaith Davis

Business environment refers to institutions or forces, that affect the organization’s performance. —Stephen P. Robbins & Mary Coulter

Business environment includes factors outside the firm which can lead to opportunities for or threats to the firm. —L. R. Jauch & W. F. Glueck

Business environment is the sum total of the environmental factors which provides an atmosphere for business. —V. P. Michael

Business environment encompasses the climate or set of conditions, economic, social, political, or institutional in which business operations are conducted. —Arthur M. Weimer

Business environment consists of all those external things to which it is exposed and by which it may be influenced directly or indirectly. —Reinecke & Schoell

The total of all things external to firms and industries that affect the function of the organization is called business environment. —W. O. Wheeler

In conclusion, the business environment is the sum of all external and internal factors that influence business decisions. Every business organization operates in a distinctive environment, as it cannot exist in isolation. Business organizations establish, operate, grow, and wind up in the environment. Owners, boards of directors, employees, and organizational culture are some forces of the internal environment and task environments such as competitors, customers, suppliers, regulators, strategic allies and general environment such as political-legal, economic, socio-cultural, and technological are the forces of the external environment.

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