- Business Environment describes all the internal and external factors which can affect the way the business functions.
- These factors include the kind of employees, the nature of the customers and their expectations, the style of management, the laws and regulations that the business must follow, and the demand of the business’ goods or service.
- These factors which forms the environment in which the business operates in have the potential to influence how fast or slow the business develops or grows. They also are able to affect how well the business performs and what becomes of the business in the end.
COMPONENTS OF BUSINESS ENVIRONMENT
Government Policies and Regulations
For instance, when the government of the country in which the business is situated changes its policies, the companies in that country must also change their plans, their operations and ways of doing business to conform to the policy of the government. A law by the government which forbids the use of plastic sachets could mean that a company which uses plastic sachet to parcels its product must find other water proof materials to use in parceling its product. This can mean added cost to the company or less cost depending on the choices made by the company.
Changes in Technology
In the same way when there is a change in technology, the company must adapt the change by changing the technology and machinery it uses because the old technology has become obsolete. Change in technology can give the business new opportunities because sometimes new technology can create new products and services which can in turn create entirely new market for the company to move into. For example, a change in printing technology from ink paper and stencils to digital printing means that you don’t need to purchase ink and paper. This can lower the cost of printing and improve the profit of the business. Change in technology can also have disadvantages especially if the company does not respond quickly to the change. For example, the introduction of Compact Disc (CD) almost entirely killed the demand for Cassettes. In the same way, the introduction of flash drives appears to be gradually killing the demand for CDs. A company which does not anticipant and changes into producing what customers are looking for would have to fold up or close down.
Change in Customer Preferences and Taste
Businesses succeeds mainly by satisfying its customers. However, customer expectations and taste are not static, they change from time to time. When the taste and preferences of the customer changes, this could mean a change in some aspect of the business environment. This because these changes can cause a fall in the purchase of what a business is producing not because the goods are not good per se, but because the taste and preference of the customers have simply change. A company which fails to adapt to this new change can expect difficulties in growing its business.
Change in the Competitive Landscape
When there are few or only one producer of a good or service we say there is very little competition. However, when more companies enter the market to produce similar goods or goods that can serve as substitute for the goods you are producing, we can say the competition has intensified or competition is high or simply, you are doing business in highly competitive market. When this happens, you may no longer be able to charge to high prices, you must now be more alert as to what is the trend in customer demand and change to respond to these trends. You must also now be watching what other companies are doing to attract customers and devise similar or more efficient ways of attracting customers to buy your products. If as a manger you fail in doing this efficiently, it can cause your business to suffer greatly.
Social and Cultural Factors
When the culture of a people changes, it may affect everything from how they behave to what they buy. This perhaps one reason why what used to be fashionable 30 years ago may not be fashionable today. The Walkman CD player has given way to music played from our phones. Fashion trends in the 70s will not be a something people want to spend money on today. Changes in culture affects what we buy and how we spend our money. For example, embracing western life style in some parts of Africa has led to a decline in the purchase of traditional wears today. These changes are not something a business manager can afford to simply observe. He/she must find ways of planning to take full advantage of the changes since this important in the success of his business.
Changes in Demographics or Population
Changes in population and general demographics are significant component in the business environment. For example, as population grows, as the population ages, the demand or the market for certain kinds of popular music may fall as the demand for health and wellness products may increase. Other changes in proportion of men to women, race, religion and ethnic groups in the society can have a serious impact on the way firms must do business.