A business is an open system that has continuous interaction with its environment. As already, it gets inputs (human resources, capital, materials, machines and equipment) from the society and converts them into goods and services for supplying them to customers who are a part of the environment. Thus, a business depends upon its environment for environment also depends on the business. In the supply of goods and services. This However, the influence of environment on business is much more than that of business of environment since business is only a small part of economic system of the country.

We have already discussed the elements of economic, politico-legal socio-cultural and international environment of business. Some of these forces have direct influence on the business while the others exercise indirect influence only. Simply, stated, economic, politico-legal and international environment affect the investment policies, strategic planning, organization structure and management system of business and socio-cultural environment influences the norms and value system of business firms.

Every business firm operates within the framework of its external environment. No firm operates in isolation. It is influenced by the environment and may, in turn, also influence the environment. Therefore, it is important for the management of a firm to fully understand its external environment and develop plans and stratifies to deal with the environment forces. If a company is able to adapt to its environment, it might fail in the long-run and disappear like dinosaurs. For instance, motorcycle producers of UK failed as they could not cope with the changes in the environment. Bit Japanese producers succeed as they could evolve strategies and techniques to deal with changes in technological, economic, social and other environment.

The forces in the environment may present both threats and opportunities the business. When they act as positive, the productive efficiency of business is increased. On the other hand, when the environmental factors act as negative constraints, they hinder operations as a result of which business efficient suffers. It should also be noted that a change in environment may present an opportunity to one business unit and threat to another. For instance, if the Government allows the import of foreign capital and technical know-how, it will mean growth and expansion for the company which collaborates with foreign companies and at the same time, it may create fear of survival for the small company which cannot afford import of technology. Thus, it is a greet challenge before e the management of a business to transform the challenges into opportunities.

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