Definition of Business Environment

The term ‘Business Environment’ refers to the totality of all the relevant forces external, to and beyond the control of, an individual business enterprise and its management. These forces, despite being externally located, continue to exercise a significant and meaningful influence on the life and growth patterns of individual enterprises.

The may include diverse constituents such as:

•    the ideological beliefs of the ruling class,

•    value systems of the society,

•    rules and regulations laid down by the government, and

•    the monetary policies of the Reserve Bank of India, and many other.

Some of these constituents may be static, some only relatively so, while others may be changing every now and then. Similarly, while it may be possible to conceptualize and/or quantify some elements, others may be referred to only in a perceptual sense. In terms of time also, the environment may be conceived as having elements of the past, the present, and the projected future.

The environment factors vary country to country, even region to region. The environment of business, thus, is an extremely complex and dynamic phenomenon.

Business environment can be classified into two major categories: the economic environment and the non-economic environment. The economic environment consists of factors like the fiscal policy, the monetary policy, the industrial policy, the physical limits on output, the price and income equation nature of the economic system, the pace of economic development etc.

The non-economic environment refers to social, cultural, political, legal, technological factors etc. Despite this segregation, the economic environment has non-economic implications just as the non-economic environment has economic implications.