The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. Thus, the economic, social, political, technological and other forces which operate outside a business enterprise are part of its environment.
For example, changes in government’s economic policies, rapid technological developments, political uncertainty, changes in fashions and tastes of consumers and increased competition in the market — all influence the working of a business enterprise in important ways. Increase in taxes by government can make things expensive to buy.
On the basis of business perspective, it can be said business environment, has the following features:
(i) Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.
(ii) Specific and general forces: Business environment includes both specific and general forces. Specific forces (investors, competitors, suppliers etc.) affect individual enterprises directly and immediately in their day-to-day working.
(iii) Inter-relatedness: Different elements or parts of business environment are closely interrelated. For example, increased life expectancy of people and increased awareness for health care have increased the demand for many health products and services like diet Coke, fat-free cooking oil, and health resorts.
(iv) Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.
(v) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.