Business Environment: Meaning and Definition of Business Environment, Business Decisions, Features and Importance of Business Environment

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Meaning of Business Environment

The success of every business depends on adapting itself to the environment within which it functions.

  • For example, when there is a change in the government policies, the business has to make the necessary changes to adapt itself to the new policies.

  • These include customers, competitors, suppliers, government, and the social, political, legal and technological factors etc.

  • Economic factors, social factors, political and legal factors, demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.


‘Business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise.

Business Decisions

Various business decisions

Various Business Decisions

Features of Business Environment

  • Sum total of all factors external to the business firm and that greatly influence their functioning.

  • Covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.

  • Dynamic in nature.

  • Changes in business environment are unpredictable.

  • Differs from place to place, region to region and country to country.

Importance of Business Environment

  • Determining Opportunities and Threats: Interaction between the business and its environment would identify opportunities for and threats to the business.

  • Continuous Learning: Managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in area of business.

  • Giving Direction for Growth: Interaction with the environment leads to opening up new frontiers of growth for the business firms.

  • Image Building: Helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working.

  • Identifying Firm’s Strength and Weakness: Helps to identify the individual strengths and weaknesses in view of the technological and global developments.

  • Meeting Competition: Helps the firms to analyses the competitors’ strategies and formulate their own strategies accordingly.

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