RELATIONSHIP BETWEEN

BUSINESS AND ENVIRONMENT

BUSINESS
• Business may be understood as the organized
efforts of enterprise to supply consumers with
goods and services for a profit.

• Businesses vary in size, as measured by the

number of employees or by sales volume. But, all
businesses share the same purpose: to maximize
profits.
BUSINESS ENVIRONMENT
• The combination of internal and external factors
that influence a company's operating situation.

• The business environment can include factors such

as: clients and suppliers; its competition and owners;
improvements in technology; laws and government
activities; and market, social and economic trends.

• The business environment poses threats to a firm

or offers immense opportunities for potential market
exploitation.
• Social and culture Environment
It refers to people’s attitude to work and wealth;
role of family, marriage, religion and education; ethical
issues and social responsiveness of business.

• Political Environment
A stable and dynamic political environment is
indispensable for business growth
• Legal Factors
Legal factors relate to new laws or directives
governing how businesses behave. This can be in
relation to other businesses, customers or the
environment.

• Demographic Factors
Demographics play a crucial role in the success of
businesses, as learning consumer characteristics helps
a business owner determine what products and
services to create and how to market them.
• Economic Environment
Business obtains all its needed inputs from
the economic environment and it absorbs the
output of business units.

• Technological Environment
Technology changes fast and to keep pace
with it, businessmen should be ever alert to
adopt changed technology in their businesses.
RELATIONSHIP BETWEEN
BUSINESS AND ENVIRONMENT
 There is symbolic relationship between business
and its environment and among the
environmental factors.

 These environmental forces are dynamic. They

keep on changing as years roll by, so does
business.

 A particular business firm, by itself, may not be

in a position to change its environment. But
along with other firms, business will be in a
position to mould the environment in its favor.
 Environment is closely related with business.
There is a constant ‘give and take’ relationship
between environment and business. The business
receives inputs, information and technology from
the environment and gives it back in the form of
outputs (goods and services).

 If these outputs are accepted by the environment,

the environment-business interaction continues
but if they are unacceptable to the environment,
firms adapt to the environmental requirements
and change their operations.
EXAMPLES
1. Business is affected by economic conditions of
the environment. During recessionary conditions,
for example, firms reduce the production or pile
their inventories to sell during normal or boom
conditions. Business, on the other hand, can
create artificial scarcity of goods by piling
inventories and force the economic conditions to
show signs of adversity while it is not actually so.
Both business and environment, thus, affect and
are affected by each other.
2. When financial institutions increase the lending
rates, firms may resort to other sources of funds,
like bank loans or internal savings (reserves).
This may force the financial institutions to lower
the interest rates. The financial environment and
the business system, thus, act and interact with
each other.