What is a Business Environment? Definition and Features

1. The importance of the business environment

Like any human being, organizations do not live in an isolated environment. They are present in their business or market environment, growing and surviving. Therefore, not only should the business environment of organizations be identified and evaluated, but it should also respond to their constituents. Therefore, the importance of business environment may be seen as the following elements.

(1) Enables the organization to identify opportunities around it and take advantage of them.

(2) Enables the organization to identify external threats and signal their presence ahead of competitors.

(3) Indicating its useful and effective resources for the use of the organization in various sectors.

(4) Makes coping and managing the organization’s external changes more efficiently and effectively.

(5) Identifying the possibility of planning and macro-policy of the organization for its excellent management.

2. Business environment definition

Different definitions of the market environment were presented in the management world and each of the authors examined them from different dimensions. In this regard, extensive studies have been carried out in several areas. In this respect, in-depth studies have been conducted in a number of areas. This includes tracking the market environment, its components and its impact on internal functions.

The answer to what is business environment question refers to a set of factors and conditions that are present in business and economics and affect the organization. These factors and conditions are outside the control of the organization and include complex, dynamic, and diverse factors. Variables such as socio-cultural variables, competition, technological, economic, political, laws and regulations, natural factors, and the like are among the most important components of the business environment.

3. Business environment features

The market environment has many distinctive features in terms of dynamism and a considerable variety of variables, which are mentioned in the following lines:

(1) Totality

The market environment is a set of all external variables that affect the performance of the organization.

(2) General and specific

The market environment includes both general environment (such as social, political, economic, etc.) and includes specific (such as suppliers, customers, etc.) of an organization.

(3) Reciprocal communication

There is an interrelationship between the components of business environment that the interconnectedness of these variables will add to the complexity of the environment.

(4) Dynamic nature

The business environment and its constituent variables are governed by dynamic relationships that sometimes make them very difficult to identify.

(5) Uncertainty

Predicting the performance of an organization’s market environment in the future will be very complex and difficult due to its uncertain nature.

(6) Complexity

Due to the high range of factors and variables that make up the business environment, there is a high level of complexity between them.

4. Dimensions of business environment

Theorists have each considered different factors as dimensions of business environment. But most of them have considered two types of business environment in the form of a business organization environment. The first environment is called the close environment, or in other words, the competitive environment or the microenvironment. Raw material suppliers, customers, intermediaries, competitors, and the public sector are among them. The second environment is referred to as the external or macroeconomic environment, which includes economic, social, technological, political, legal and demographic factors.

4.1. Micro environment

4.1.1. Suppliers: Suppliers include all the people who provide the resources needed by the organization.

4.1.2. Market intermediaries: Market intermediaries include parties involved in the distribution of an organization’s product or service.

4.1.3. Partners: Partners are all separate entities that work with the organization. Such as advertising agencies, market research organizations, banking and insurance companies, transportation companies, brokers, and so on.

4.1.4. Customers: Customers are composed of the target group of the organization. Suppliers and customers together makes marketing environment.

4.1.5. Competitors: Competitors are actors in the same market who target similar customers of the organization.

4.1.6. Public Sector: The public sector is made up of any other group that has a real or potential interest or influence on the company’s ability to provide services to its customers.

4.2. Macro environment

4.2.1. Economic environment: The economic environment is perhaps the most important component of the business environment that is very important for the management of the organization in making its decisions. Some aspects of the economic environment include (1) the role of the private and public sectors, (2) GDP growth rate, GDP and per capita income, (3) savings and investment rates, (4) trade balance, (5) balance of payments, and (5) Transport and communication system

4.2.2. Social environment: The social environment consists of the customs and traditions of the company’s society. Some of the most important aspects of the social environment around the organization are (1) quality of life (2) the importance or position of women in the workforce (3) birth and death rates (4) customers’ tendency to innovate, lifestyle, etc. and (5) education rate And literacy

4.2.3. Political environment: The managers have to make changes in his organization according to the changing factor of the political environment. Attention to factors such as (1) the current political system (2) the country’s constitution (3) the profile of political leaders (4) government intervention in business and (5) government foreign policy are important points that the management of the organization should pay attention to.

4.2.4. Legal environment: The legal environment is composed of various laws and regulations, and the management of the organization cannot ignore the regulations because business transactions must be done within the legal environment. Some of the most important factors affecting the legal environment of the organization are (1) different laws and legal materials (2) legal policies related to the establishment license (3) legal policies related to foreign trade (4) legal warnings of advertising and (5) monitoring laws advertising

4.2.5. Technology environment: The technology environment refers to changes in production methods, the use of new equipment and machinery to upgrade, and product quality. In this regard, we can mention several factors such as (1) various innovations and inventions (2) scientific improvements (3) development in the field of information technology (4) export and import of technology, and (5) technological advances in computers.

5. Key points to adapt to the business environment

Change is inevitable, and if companies want to survive, they have to adapt to external environment. This section outlines 7 key points that managers and entrepreneurs need to make their decisions to survive their business.

  1. Continuous attention to changes in the international business environment
  2. Accept the idea of change
  3. Predict and prepare for the future and focus on the status quo
  4. Adapting to various methods of managing the organization
  5. Adaptability to new rhythms of the market environment
  6. Monitor the performance of competitors in the face of types of environment variables
  7. Improving the internal processes of the organization around the anticipated changes in external factors of the market environment

6. The process of examining external factors

Examining the effective external factors should be done in a group with the participation of company managers. This will have a positive effect on the performance of managers and their interactions with each other. The list of global business environment factors should be prepared according to the opinions of managers.

The identification of factors should be done by studying statistics and reliable information and data collected from the environment around the organization and should not be done only by relying on the intuitive and judgmental opinions of managers. It should also be noted that the statements made by managers are based on their experience and knowledge, but the existing information should also be verified and the value of their opinions should be measured following the data.

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