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Constituents of Business Environment

A business can grow and prosper in a particular environment
just as a plant can grow in a particular soil, climate, water
supply etc.

Hence the entrepreneur has to pay attention to the

If he is able to adapt his business to the environment effectively
and efficiently the business can make higher profits. This
makes the study of business environment important.
Constituents of Business Environment
Environment of business can be classified as internal i.e. within
the firm and external that is outside the firm.

The external environment is a sum total of political, economical,
social, legal factors that directly influence the Profit and
production of business firm.

A systematic study of each component of external environment
is necessary to understand how they interact with each other
and affect the working of business. Let us discuss each of
these environments in detail.
External environment
External factors , these include Macro factors
and micro factors.
Macro Environment:
Demographic Environment

Natural/Ecological Environment

Economic Environment

External environment
Political environment

Cultural & Social Environment

Legal environment

Technological environment

International environment

External environment
while micro factors are those which affect the
organization directly it involve
suppliers and

Macro Environment
What is Demographic Environment?

Through the help of internet find out the
Population of India
Male Female ratio
Macro Environment
What is Demographic Environment?
The demographic environment is one of the elements of the
marketing environment and includes such important aspects
as population size and growth rates, age and sex profiles,
family lifecycle stages, occupation patterns, levels of
education, actuarial health and morbidity projections, etc
Through the help of internet find out the
Population of India - 121 Crores
Male Female ratio - 940 females per 1,000 males

Macro Environment
The Demographic Environment
Size of the population
The financial status of the population
Rural Urban Distribution
The rate of Growth
Labour Supply
Level of Education

Economic Environment
Economic Conditions in the Market
Demand Factors
Supply Factors
Economic Policies of Govt
Economic Systems
Capitalist Economy
Centrally planned or communist economy
Mixed Economies
Match the following

Capitalist Economy - China
communist economy - India
Mixed Economies - USA

Match the following - Answers

Capitalist Economy - USA
communist economy - China
Mixed Economies - India

In any country, the political environment is
characterized by the following dimensions:
The nature of the polity
The nature of the constitution of the country
The political system
The political awareness of the people and of the
The laws passed by the government
Natural/Ecological Environment
Natural environment consists of natural resources, like land,
water, minerals, climatic conditions, rainfall and all other natural
resources found on the surface of the earth and in its bowels.

A study of natural environment is useful in deciding the location
of business. The availability of raw materials in a particular
area affects locational decisions of business.
Social and cultural environment
Social environment includes customs, traditions, beliefs, values,
tastes and preferences, buying and consumption habits of various
social groups of the society.

The social environment reflects the expectations of different social
classes operating in the society. Each group has some expectations
from business firms.

Social environment is supplemented by cultural environment.
Culture may be defined as a some total of knowledge, belief, art,
morals, laws, customs and other capabilities and habits acquired by
individuals and groups as elements or society.
Regulatory Environment (Legal
Laws affecting private Business

Laws relating to Employer-Employee relations

Laws Relating to Consumers
Technological Environment
Technology relates more to technique of production or
application of scientific know-how to improve the quality and
quantity of the product and production process.

Technological environment consists of
a) State of domestic or indigenous technology
b) Facilities for Research and Development
c) Technical Collaborations etc. A study of technological
environment is very essential due to various reasons
Micro factors
Channel Intermediaries

Value system

Vision, mission & objectives

Mgt Structure & Nature

Internal Power Relationship


Company Image & Brand Equity