Business Environment, Its Internal and External Forces

 

Business Environment

A business environment is an environment which is refers to the sum total of all the individuals, institutions and other forces outside the business enterprise. It affect the performance of Organisation. It is the environmental scanning of the market about the demand and supply fluctuations. 

Environmental scanning helps in gathering various information about the customer’s demand and their taste and preferences about product. Through environmental scanning we can obtain many opportunities and various constrains to the business. It creates opportunities for their better expansion and growth of the business by developing new technologies, increase in population and growth.

 

The business forces of business environment are of it various sources such as  customers, competitors, middlemen( wholesalers, retailers) suppliers and publics.

It has two types of environment namely: Micro Environment and Macro Environment. Business environment  has both internal and external forces.

 

Internal forces:

 Internal environment refers to all the forces which comes within the business firm or enterprises and are considered to be controllable because it has control over it. Internal enterprise also imparts two thing which are called strength or weaknesses. A strength is an inherent capability of doing something which helps in gaining strategic advantage over its market competitors.

 

The main internal factors which influence business environment are :

 1.    Aims and missions: The main aim of the business enterprise is to guide it product market scope, development process economic progress etc. The company’s vision describes where does the Organisation reach in future. Mission and purposes of other companies are guided through their thrust and portfolio strategy.

2.    Corporate values : The values and attitude of the founder of the top management exercise a influence on how does a company stand and it does things. When value system is shared the Organisation is more successful.

       It also helps in determining its behavior towards their workers. Consumers and society at a large. Due to this a company may refuse for the production of alcoholic things such as liquor because it is injurious to health.

3.   Organisation structure :Organisation structure means the fusion or the composition of the number of directors, professionalization and has its Organisational structure. It helps in facilitating decision making quickly and easily. The pattern of shareholding influence the functioning. 

        An efficient working of business Organisation requires that its Organisation structure should be conductive to quick decision making. Technically, shareholder elect directors and the directors appoints company’s top managers who take various business decisions.       

 

4.   Brand image of Company: The Company image plays a significant role in the world of competition. Its consist the goodwill of the company. A company should not waste their time in earning profits but he should also serve the society. He should sell better quality product at a reasonable price and it also helps in raising the standard of living of people.

 

5.    Power Structure: In an Organisation, there is a power relationship between the board of directors and the chief executive. The management has the support of shareholders implementing the decision making quickly as shareholders are the owners of the company and they have full control over the company.

 External forces:

All micro forces may not have the same effect on the firm. They are less controllable. It is those forces which business comes to a direct or a frequent contact in its functioning. These groups are also known as stakeholders. These are the forces which cannot controlled by business firm.

 

Micro environment comprises the following external factor:

1.   Customers: Customers are those persons buy firm’s product and services for the satisfaction of their wants. Goods are produces for the satisfaction of their want. A firm manufacturing pens has many types of customers such as households, school students teachers business firm and government etc. It cause danger for business firm who depend on single consumer group. A business cannot survive for long if it does not have any customers.

        In order to become successful a company must acknowledge the wants and needs of the consumer. A firm need to know what the customer expected from the business firm. It need to see the profitability and the elasticity of the demand of the firm.

 

2.   Suppliers: Suppliers are those persons who produce the goods and services for the satisfaction of the customer wants. They supply the goods and services at the right time and at the right place. If goods are not supplied at the right time then it cause delay in the distribution of goods and services. It should not depend on a single supplier group.

       

        The next important thing that in what quantity the goods are supplied in the company. Reliable sources many enable the company to carry on uninterrupted operations and minimize warehousing  cost for the storage of goods. It is advisable to the company to develop multiple supplier group.

 

3.    Competitors: In this world of competition, companies compete with each other relating to their prices of the goods or the stock of the goods. Companies have two type of competitors both direct and indirect competitors. Direct competitors are those competitors who offer same and similar products. For example: vivo mobile phone faces direct competition from other brands such as Oppo, samsung, Redmi and realme.

 

        On the other hand, Indirect competition are those competitors which offer different products such as video games facing indirect competition from watching televisions and other marketing entertainment.

 

4.  Marketing Middlemen: Several marketing middlemen are involved in promoting, transferring and selling goods and services from producers to ultimate consumers. Middlemen contains wholesaler, agents, retailers. Transportation and warehousing are useful; in the storage and the transferring of goods and services from a place of production to place of ultimate consumption. Advertising agencies, sale promotion and the publicity are useful device for the promotion and bringing about the knowledge of the product. 

 

5.  Financiers: Financiers include the shareholders, Debenture holders  and bank provide finance or funds to the company. It is very costly to raise funds from the shares because they are risk taking.

FAQ

Q 1. How does Internal Factor affect in reality?
Answer 1. There are various internal factors affect our business but now we will know the real factor affect Organisation. When we do analysis, scanning and various experimentations inside the Organisation, we often found various factor which affect internally. The first one is decision of board of directors which affect the most. All the planning and events happening in the Organisation are decided by the CEO and Board of directors. Correct data must be given to the directors in order to make a better decision in which success of Organisation is hidden.
 
Q 2. How does External Factors affect in reality?
Answer 2. In reality, Demand, supply, technological advancement and consumers taste and preferences affects the environment of business firm. Instead of affecting from internal factors business is mostly affected from external factors because internal factors can be controllable but external factors are not in the control of firm. Hence, they are uncontrollable. It is not very easy to identify all the factors affecting firm externally. That’s why business environment is complex.

 The Last Saying

       At last, I would like to conclude that, It is very important to do environment analysis regularly, so that you can cope with the changes in the environment of business. It gives you regular updates about what changes occur in the society or in the market related to the prices, fluctuations in business cycle and many more. 

       Also Read: Accounting: Meaning, objectives and Functions.