The Business Environment

The business environment is simply the surroundings within which a business exists. Business environment embraces all institutions, organisations and individuals whose activities have an impact, whether directly or indirectly, on business behaviour (Ifechukwu, 1986).

• Business environment is made up of the internal and the external environment. 
• The external environment is further divided into two - Macro and Micro Environment. 
• The macro environment is regarded as the general environment while the micro environment is regarded as the specific or task environment. 
• The internal environment could be termed the controllable environment while the external environment is seen as uncontrollable.

The internal environmental factors refer to those factors over which the management of the

business has control, at least in the short run; this is why it is also called the controllable environment of the business.

The external environment is a set of complex, rapidly changing and significant interacting institutions and forces that affect the organization's ability to serve its customers. External forces are not controlled by an organization but they may be influenced or affected by the organization. 

The external environment is divided into two – macro and micro environment. The macro environment is referred to as the general or remote environment while the micro environment is seen as the specific or task or operating environment. 

Macro environment (General or Remote Environment)

The external macro environment consists of all the outside institutions and forces that have

an actual or potential interest or impact on the organization's ability to achieve its objectives.

This includes the economic, technological, political, legal, social, cultural, demographic and

ecosystem. 

Economic Environment: The economic environment consists of factors that affect consumer

purchasing power and spending patterns. Economic factors include business cycles, inflation,

unemployment, interest rates, and income. Changes in major economic variables have a

significant impact on the marketplace. 

Technological Environment: The technological environment refers to new techniques or

methods which are used to create new product and market opportunities. Technological

developments are the most manageable uncontrollable forces faced by marketers.

Organizations need to be aware of new technologies in order to turn these advances into

opportunities and a competitive edge.

Political and Legal Environment: Organizations must operate within a framework of

governmental regulation and legislation. Government relationships with organizations

encompass subsidies, tariffs, import quotas, and deregulation of industries.

Demographic Environment: Demographics tell marketers who current and potential

customers are, where they are, and how many are likely to buy what the marketer is selling.

Demography is the study of human populations in terms of size, density, location, age, sex,

race, occupation, and other statistics.

Social/Cultural Environment: Social/cultural forces are the most difficult uncontrollable

variables to predict. It is important for businesses as well as marketers to understand and

appreciate the cultural values of the environment in which they operate. The cultural

environment is made up of forces that affect society's basic values, perceptions, preferences,

and behaviours.

Micro (Specific or Task or Operating) Environment

The external microenvironment consists of forces that are part of an organization's marketing

process but are external to the organization. These micro environmental forces include the

organization's market, competitors, producer-suppliers, and its marketing intermediaries.

While these are external, the organization is capable of exerting more influence over these

than forces in the macro environment.

Characteristics of Business Environment

The environment of business exhibits the following characteristics:

Dynamism: The business environment is not static. It is dynamic and as such changes

continuously. This is because of the interactions of the various factors that make up the

business environment.

Complexity: The business environment is not simple; it is complex by virtue of the various

components that comprise it and the interactions and interrelationships among these factors.

Multifaceted: The business environment is many-sided. It can be viewed from many angles

by the parties involved. Hence, an occurrence that is viewed as strength to an organization

may be perceived as a weakness by another.

Far-reaching impact: The happenings in the business environment can have enormous

impact on the organization. It could have the ripple effect. This is because the business

environment can be conceived as a system, specifically an open system made up of different

components that interact and interrelate with one another.

Posted by: Monday Desmond