What business environment is

Business environment means all the individuals, institutions and forces outside a firm, which it cannot control, but which may affect how it performs.

Think of the weather. You cannot tell the rain to stop because you have a party to go to, yet the rain still changes your plans. In the same way, a business cannot stop a new tax or a lockdown, but it feels the effect on its sales, profits and growth.

Two kinds of force act on a firm:

• Specific forces act directly on one firm: its investors, customers, competitors and suppliers.
• General forces act on all firms, and affect each one only indirectly: social, political, legal and technological conditions.

Features of the business environment:

• Totality of external forces: it is the sum of everything outside the firm.
• Specific and general forces, as above.
• Inter-relatedness: its parts affect each other. Health awareness (social) raises demand for low-fat products (economic), which in turn changes lifestyles. Likewise, more working women raised the demand for washing machines and mixers.
• Dynamic: it keeps changing, so a firm must watch it all the time, not once a year.
• Uncertain: the future is hard to predict. Even the weather office, with all its instruments, sometimes forecasts heavy rain on a day that turns sunny.
• Complex: many forces act together, and their combined effect is hard to understand.
• Relative: it differs from place to place. Sarees sell well in India but hardly at all in France; political conditions differ between the USA and China.

One person's invention can change the environment for many: a farmer, Dharamveer Kamboj, built a multipurpose food-processing machine that changed how small producers work.