Environmental Factors Affecting Business

Business Environmental

Business environment refers to the totality of all such factors which influence the working and decision-making of a business organization. Every business organization has to operate under a given environment, which is called the business environment.

There are two factors that affect the operation of the business. These can also be classified into two categories. Internal factors and external factors.


Environmental Factors Affecting Business

The environmental factors can also be classified into two categories. Which are given below:

  1. Internal Factors
  2. External Factors

Internal Factors

The internal factors are known as controllable factors because the business has control over these factors. these factors can easily alter or modify its personnel, physical facilities, organisation and functional means, such as marketing mix, to suit the business environment.

The most important internal factors which have a bearing on the strategy and other decisions are:

Value System

The value system of the founders has an important bearing on the choice of business. The mission and objectives of the organisation or business policies and practices.

Mission and Objectives

The business domain of the company, priorities, direction of development, business philosophy and business policy etc are guided by the mission and objectives of the company. The mission and objectives of a business can easily alter or modify to suit the business environment.

Management Structure and Nature

The organisational structure the composition of the board of directors, the extent of professionals in management etc are the most important factors influencing the business decisions. Some management structures and styles delay decision making while some others help in quick decision making.

Internal Power Relationship

Factors such as the amount of support the top management enjoys from different levels of shareholders, board of directors and employees have an important influence on the decision and their implementation.

Human Resources

The features of the human resources like skill quality, morale, attitude, commitment etc., could contribute to the strength and weakness of the organisation, Some organisations find it difficult to carry out restructuring and modernisation because of resistance from employees whereas they are smoothly done in some others.

Company Image and Brand Equity

The image of the company maters while raising finance, forming joint ventures or other alliances, soliciting marketing, entering purchases, sales contracts, intermediaries, launching new products etc, Brand equity is also relevant in several of these cases.

External Factors

The external factors, on the other hand beyond the control of a company. The external or environmental factors such as the economic factors, socio or cultural factors, political factors, geophysical factors and demographic factors etc.., are therefore generally regarded as uncontrollable factors.

Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as microenvironments also known as task environments and operating environments. There are other external factors that affect an industry very generally such as industrial policy, demographic factors etc.

Economic Factors

Economic factors have a bearing on the functioning of a business unit. Business depends on the economic environment for all the needed inputs. It also depends on the economic environment to sell the finished goods. Naturally, the dependence of business on the economic environment is total and it is not surprising because, as it is rightly said, business is one unit of the total economy.

It is difficult to be precise about the factors which constitute the economic environment of a country. But still, there are some factors that have considerable influence. These factors are:

  • Growth strategy
  • Economic system
  • Economic planning
  • Industry
  • Agriculture
  • Infrastructure
  • Financial and fiscal sector
  • Removal of regional imbalances
  • Price and distribution control
  • Economic Reforms

Socio or Cultural Factors

Social factors which are “beyond the company’s gate”. All such factors come under one head that is culture. These factors exercise a great influence on the businesses which by far are beyond the company’s control. All these factors are classified as social-cultural factors of the business. The buying and consumption patterns of the people are very much determined by these factors and the cost of ignoring the customs, tastes and preferences etc. of the people could be very high for a business.

Consumers depend on cultural prescriptions to guide their behaviour, and they assume that others will behave in ways that are consistent with their culture.

Political Factors

Political factors, in the context of the external environment in which business functions, are a type of external constraint acting upon a business. They’re related to actions of governments and political conditions in the location where the business conducts business or seeks to conduct business.

The first thing to recognize is that political factors constitute an external constraint on a business, which just means that the political factors that affect a business that completely out of the company’s control.

Technological Factors

There are certain technological factors that will affect the businesses across the globe as per demand which would result in changing behaviour as per the need of traditional marketing. The fast formulation of technology needs calculating explanation by businesses in order to persevere in a materializing economic environment and additionally preserve up with contemporary directions along with constructive motivations which detached combatants might be approaching.

Micro Environment Factors

The microenvironment factors in the company’s immediate environment affect the performance of the company. These include the supplier marketing intermediate competitor customer and the public:

Suppliers: An important factor in the microenvironment of a company is the suppliers (i.e) suppliers supply the inputs like raw materials and components to the company (the importance of a reliable source or source of supply to the smooth functioning of business is obvious)

Customers: The major task of the business creates and sustain customers (a company may have different categories of the customers like individuals, households, industries and other institutions.

Competitors: A firm competitor includes not only the other firms that market the same or similar products but also those who compete for the discretionary income of the consumers.

Marketing intermediaries: Marketing intermediaries are vital links connecting the company and final consumers. A dislocation or disturbance of the link or wrong choice of the link may cost the company very heavily. Retail chemists and druggists and India once decide to boycott the products of a leading company and the company has been in trouble.


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