Elements Of Business Environment


Elements Of Business Environment


  • Political Environment
  • Economic Environment
  • Social Environment
  • Technological Environment
  • Legal Environment
  • Demographic Environment
  • Natural Environment
  • International Environment




The political environment can be one of the less predictable elements in a business. Any business needs to monitor the changing political environment because political change can profoundly affect an organization. Political stability can be key for market stability. The political system prevailing in a country decides, promotes, fosters, encourages, shelters, directs and controls the business activity of that country. The most developed countries today, owed their success to the prevailing political situation in their country.


Any political environment of a country can be either blessing for some business or curse for other business. In other sense, it provides opportunity to some business and threats to others. A businessman has to adjust his business to the prevailing political environment as he is left with no choice.


Characteristics of Political Environment


  • The first and foremost affecting environment to the business.
  • The impact may be positive or negative.
  • May be favorable to some business and unfavorable to other business.
  • Close relationship with economic environment.
  • Changing political environment always brings changes in the business.


2.         The Economic Environment


Next to the Political environment is the economic environment, which affects business.

The economic environment refers to all those economic factors, which have bearing on the functioning of a business unit. Business depends on the economic environment to buy its input as well as to sell it.

The Economic Environment affects the demand structure of any industry / product. At the same time Indian Economy is witnessing growth rate of 6% plus on an average per annum. In order to assess the impact of these forces, it is necessary for the business to examine the following factors in a greater detail.

  1. Gross National Product
  2. Per Capita Income
  3. Balance of trade position
  4. Industry life cycle and current phase through which industry is passing. (Boom, Recession and depression)
  5. The inflationary or deflationary trends.
  6. Rate of Interest charged by commercial banks.


These factors can be threat or opportunity to a firm. The marketer needs to understand the impact of these economic forces on his company’s products and services.


3.         The Social and Cultural Environment::


Culture represents RELIGION, LANGUAGE, UPBRINGING AND EDUCATION of any human being.

Social Class comprises of Income, Occupation, location of residence etc.

In India, there are 7 major religious groups such as Hindu, Muslim, Sikhs, Christians, Zoroastrians, Buddhists and Jain. There are 17 different languages spoken in 28 different states of the country.


In such an environment, it is crucial for businesses to fully understand the cultural values of a society, especially where an organization is seeking to do business in a country where social and cultural values keep changing in all areas and they are given top priorities (Daily Soap operas work successfully in India). Attitudes to specific products/services change through time and at any one time between different groups. Key issues relating to the social and cultural environment include the changing role of women; the importance of leisure time and the role of the family.


4.         Technological Environment


The pace of technological change is becoming increasingly rapid and businessman need to understand how technological developments might affect them in four related business areas:


v New technologies can allow new goods and services to be offered to consumers

v New technology can allow existing products to be made more cheaply, thereby widening their market

v Technological developments have allowed new methods of distributing goods and services

v New opportunities for companies to communicate with their target customers have emerged.


5.         Demographic Environment


Demography is the study of populations in terms of age and sex composition. Among the topics of interest to demographers are the age structures of a country, the geographic distribution of its population, the balance between male and females, and the likely future size of the population and its characteristics. Changes in the size and age structure of the population are critical to many organizations. For any business in any country, it is very important to understand the demographic environment as “People make up markets.”


6.         Natural Environment


  1. Geographical factors such as
  • Weather, climatic conditions.


  1. Rainfall, minerals, soils, land forms,


These resources have enormous impact on the business of any industry.

Manufacturing activities also depend on the availability of / condition of natural environment. Thus, business is very much affected by Natural Environment.


7.         Legal Environment:


Legal Environment is the result of government intervention in the economic and business spheres. A business has to operate within the framework of regulations and legal provisions created by legal environment.

Thus, legal environment is the net result of various laws, rules procedures and regulations made by the government in regard to the formation and operation of business enterprises.


8.         International Environment:


This comprises of International Elements such as


  • International politics
  • Economic environment at International Level
  • Legal Environment at International Level
  • And other environmental elements.


This environment affects businesses, which are dependent on international environment. The exporter, importer, domestic marketer; all these gets affected by international environment.


  • War
  • Political changes in important countries
  • Changes in economic policies of important countries
  • Development of MNCs

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