Explain Dimensions of Business Environment.
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There are 5 dimensions to business environment. These are economic, social, legal, political and technological. The social environment of business include the social forces like customs and traditions, values, social trends and societys expectations from business.For example, the celebration of Diwali, Id and Christmas in India provides significant financial opportunities for greetings card companies, confectionery manufacturers, tailoring outlets and many other related business.
(A) Legal Environment
- It includes various laws passed by the government, administrative orders issued by government authorities, court judgments as well as decisions rendered by the central, state or local governments.
- Understanding of legal knowledge is a pre-requisite for the smooth functioning of business and industry.
- Understanding the legal environment by business houses help them not to fall in a legal tangle.
- The legal environment includes various laws like Companies Act 2013, Consumer Protection Act 1986, Policies relating to licensing & approvals, Policies related to foreign trade etc.
Example: Labour laws followed by companies help them to keep away from penalties.
(B) Political Environment
- It means that the actions were taken by the government, which potentially affect the routine activities of any business or company on a domestic or at the global level.
- The success of business and industry depends upon the government’s attitude towards the business and industry, Stability of Government, Peace in the country.
Example: Political stability and central government’s attitudes towards business, industry and employment, has attracted many national and international business entrepreneurs to invest in India.
(C) Economic Environment
- The economic environment consists of an economic system, economic policies and economic conditions prevailing in a country.
- Interest Rates, Taxes, Inflation, Stock Market Indices, Value of Rupee, Personal Disposable Income, Unemployment rate etc. are the factors which affect the economic environment.
Example: A rise in the disposable income of people due to a decrease in tax rates in a country creates more demand for products.
(D) Social Environment
- Social Environment consists of social forces like traditions, values, social trends, level of education, the standard of living etc. All these forces have a vast impact on business.
- Tradition: It refers to social practices that have lasted for decades, such as Ugadi, Deepavali, Id, Christmas,etc.,
- Impact: More demand during festivals provides opportunities for various businesses.
- Values: It refers to moral principles prevailing in the society, such as Freedom of choice in the market, Social Justice, Equality of opportunity, Non-discriminatory practices etc.
- Impact: The organisations that believe in values maintain a good reputation in society and find ease in selling their products.
- Social Trends: It refers to a general change or development in the society, such as health and fitness trend among urban dwellers.
- Impact: Health and fitness trend has created demand for gyms, mineral water etc.
(E) Technological Environment
- It consists of scientific improvements and innovations which provide new ways of producing goods, rendering services, new methods and techniques to operate a business.
- It is very important for a firm to understand the level of scientific achievements of a particular economy before introducing its products.
- Technological compatibility of products also drives the demand for manufactured products by a company.
Example: E-commerce has changed the scenario of doing the business, buying goods and availing services at the click of a mouse or through mobile, Digital India initiative by the government and move towards a paperless society.