Explain, with examples, the various dimensions of the business environment.
Following are the dimensions of the business environment:
1. Economic Environment: The economic environment consists of the factors and forces concerned with means of production and distribution of the wealth. It comprises interest rate, rate of inflation, value of GDP, per capita income, tax rates, disposable income etc. For example a rise in the per capita and disposable income of the consumer will lead to an increase in the demand for goods and services.
2. Social Environment: The social environment consists of all the social and cultural forces within which business firms operate. It comprises customs and traditions, values, social trends etc. For example, the emerging trend of health and physical fitness provides opportunities to businesses like gyms, diet drinks, mineral water, food supplements etc.
3. Technological Environment: It refers to the changes taking place in the method of production and use of equipment to improve the quality of product.
In other words, the technological environment includes forces relating to scientific improvement and innovations, which provide new ways of producing goods and services and methods and techniques of operating a business. For example, innovation and improvement in the area of food preservation has not only provided vast opportunities to firms producing jams, jelly, pickles, ready to cook foods, etc but also increased the demand and consumption of such products in society.
4. Political Environment: The political environment consists of the forces concerning management of public affairs and their impact on business. It includes political conditions in the country and attitude of the government towards business and business policy. For example political unrest and threat to law and order adversely affect confidence of investors and reduce the level of investment in the economy.
5. Legal Environment: Business has to function within the framework of laws and regulations of the country. Non-compliance of these regulations can create legal problems for business enterprises.
A number of laws have been implemented by the government through the enactment of the companies Act, Foreign Exchange Management Act, Factories Act, competitions Act etc. For example, products like tobacco and cigarettes are required to carry a statutory warning on their packages, ‘smoking is injurious to health’.
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