Business environment consists of the external forces which affect the functioning of a business enterprise. These forces may be divided under two categories, namely: (i) General environment; and (ii) Specific environment. It should be noted that every business unit also has internal environment which includes production, finance, marketing, personnel, legal, etc.


General environment forces exercise their influence on a business unit in an indirect manner, i.e., by influencing the specific external forces. These include economic, political, social, technological and global or international forces as of the business enterprises are not influenced directly by the general forces. But big enterprises are many a time directly influenced by the general external environment forces such as, introduction of new technology, trends in international business, trade policies of foreign governments, etc.

Specific external environment forces influence the working of a business firm directly. These include customers, owners and investors, suppliers, creditors, employees, trade unions, competitors, governments, etc.

The environment of a business enterprise may be static or dynamic. When the environmental forces do not show a significant change, they are termed as stable or static environment. But the environment of modern organization is dynamic because of frequent changes. The nature and degree of change is not predictable.

The examples are invention of new technique of production, replacement of a minister in the Government, changed in industrial policy, revision of borrowing and lending rates by the Reserve Bank of India, and so on. Such factors create turbulent environment for the business. As a result, the business has to face greater uncertainty n the environment.

We can sum up the characteristics of environment of modern business as follows:

(i)    Total External Forces: Business environment is aggregative in nature. It represents the sum total of all the external forces that have influence on the working of a business system.

(ii)    Specific and General Forces: Business environment covers both specific and general environment. Specific environment (such as investors, customers, competitors, suppliers, etc.) affects the business directly. But general environment (such as social, political, international, economic forces, etc.) affects the business both directly and indirectly.

(iii)    Dynamic: It is dynamic in nature; it keeps on changing.

(iv)    Uncertain: It creates uncertainty for the business firms as it is very difficult to predict the trend of any environmental force with full accuracy.

(v)    Relative Influence: Business environment is relative in nature. For example, a change in economic environment may be unfavourable for one business and unfavorable for another.

(vi)    Contextual: Business environment provides the macro framework within which a business enterprise or a micro entity operates. The management of a business has to work within the framework of business environment.

(vii)    Inter-temporal: Various dimensions of business environment change in the long-run. For instance, economic environment in India in the pre 1991 era and the post 1991 era can be distinguished clearly. The post 1991era is characterized by liberal economic policies and globalization.

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